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Sustainability of tax revenue is key to any government’s fiscal sustainability, that is, the ability to meet both current and future financial obligations (including debt servicing obligations) without major policy adjustment. A recent report examining broad trends within the Commonwealth tax system has identified some significant changes in tax receipts and therefore risks to the sustainability of tax revenue.

The report noted that since the early 2000s, the most significant overall changes in tax receipts as a share of GDP have been in the areas of fuel excise, customs receipts, and company tax. While some of changes can be explained by innovation and globalisation such as a fall in fuel excise receipts being attributed to improvements in fuel efficiency of cars, and the fall in custom receipts being attributed to free trade agreements.

Other changes such as the fall in company receipts may be more concerning for the future government policy. The report indicates that the fall in company receipts is a result of investment becoming more concentrated in capital intensive industries which generally have higher losses that are carried forward. Although as the carried forward losses are used up, there could be a counteracting positive effect.

Another worrying trend in the coming decade is the increase in personal income tax receipts due to ongoing bracket creep, notwithstanding the government’s recent implementation of lower personal tax rates as an attempt to prevent such an occurrence. A further challenge identified in the report is the ongoing decreases in various consumption tax receipts, in particular GST, mostly driven by consumer behaviours and technological change.

The overall effect of these trends indicates that in the future, tax receipts from consumption taxes such as the GST will continue its downward trend, while taxes on capital will either trend downwards or remain flat. Further, an increasing proportion of income will be taxed concessionally through the superannuation system due to the increase in compulsory super contributions substituting for wages growth.

Beyond these identified tax trends, the report also identifies other risks to tax receipts including:

• Increasing uncertainty internationally regarding policy changes in company tax rates and tariffs which could have flow on effects for Australia;
• Growth of peer-to-peer sharing economy which increases the volatility in person income tax receipts and the scope for tax minimisation.

To avoid increasing reliance on personal tax receipts in the future to achieve fiscal sustainability, whichever party is in power will have to tackle the unpopular issue of tax reform which could include broadening the GST base, wholesale changes to the rules around the sharing economy, or potential changes to how superannuation is taxed. Want to get on the front foot? We can help you plan ahead and future proof you or your business’s tax affairs. Contact us today for more information on 9489 3399.

You may have heard all about the small business tax concessions, but do you know how you qualify for them and whether you’re making the most of the tax concessions available to you? Generally, your business would qualify as a “small business entity” if you have, or is likely to have an aggregated turnover in the current income year of less than $10m. It may also apply if you’ve had an aggregated turnover in the previous income year of less than $10m.

If your business qualifies as a small business entity then you may be able to access a range of tax concessions including lower tax rates, capital allowance concession, trading stock concession, as well as FBT and GST concessions.

Lower Tax Rates

Tax rate for small businesses are generally 27.5% rather than the 30% rate for other businesses. If your business is a non-corporate small business entity then instead of the lower tax rate you will be entitled to a tax discount in the form of a tax offset.

Capital Allowance Concession

Small business entities will be allowed an immediate deduction for depreciating assets costing less than $20,000 in relation to assets first acquired on or after 12 May 2015 and first used, or installed ready for use before 1 July 2019 (depending on the passage of legislation). If you acquired the asset outside of the specified period above, the immediate deduction limit is $1,000.

Trading Stock Concession

Businesses are generally required to account for changes in the value of trading stock for the income year as the difference between the opening value of trading stock on hand and the value of trading stock at the end of the year. However, small business entities may choose not to account for changes in the value of trading stock if the opening value and a reasonable estimate of the GST-exclusive value of trading stock on hand at the end of the year does not exceed $5,000.

FBT & GST Concessions

Car parking benefits provided by small business entities on its own premises is an exempt parking benefit for the purposes of FBT. This means that the car parking benefit provided to employees by small business entities may not have to be included in the calculation of any taxable fringe benefits amounts.

Small business entities may also choose to account for GST on a cash basis. It means you can account for GST on the BAS that covers the period in which you receive or make payments for your sales or purchases. The advantage is that the money flowing through your business is better aligned with your BAS liabilities and hence better for your overall cash flow.

Contact us today on 9489 3399 if you would like to take advantage of the tax concessions offered.

There was a time when, if a company got into financial difficulty the contracting party could terminate the contract, even if the company had been meeting all its obligations. The “ipso facto” clause was the contract’s device that allowed this termination to take place. A Latin term that means, rather unhelpfully, “by the fact itself”, the ipso facto clause acted like a trip switch in a fuse box that the contractor could flick at the occurrence of an insolvency event, pulling the plug on the contract and bringing an end to the business trading. Not so now.

As part of the sweeping insolvency reforms that came into operation on 1 July 2018, new legislation has prohibited ipso facto clauses that once provided for a contract to self-destruct in the event of insolvency.An insolvency event can include voluntary administration, receivership and schemes of arrangement. These are all processes where the company is trying to work its way out of financial difficulty.The activation of the clauses has been particularly prevalent in the construction industry where parties seek to withdraw the obligation to continue providing their services in what they consider to be a risky business environment.

The new ipso facto provisions and the safe harbour reforms (discussed in previous articles) share a common purpose – to discourage directors and contracting parties from bailing down the escape hatch, and to get them to keep trading.This essence of the ipso facto reform, that only applies to contracts, agreements or arrangements entered into after 1 July 2018, is to provide for a “stay” against the enforcement of those ipso facto clauses.

In other words, any action taken by a party relying on that ipso facto clause to weasel its way out of a commitment to stay the distance of the contract, would be suspended to allow the company to continue trading for the benefit of its creditors and employees, until the administration ends or the company is wound up.

A contracting party can apply to the court for an order that a stay on enforcement rights be lifted if it is appropriate in the interests of justice or, in the case of a scheme of arrangement, if the scheme was not for the purpose of the company being wound up in insolvency.

The very positive side of the change for creditors and employees is that the company experiencing financial difficulty can continue to trade while it still meets its obligations under the contract – without the other party pulling the contractual rug from under its feet. With all the changes taking place in insolvency, we can guide you through the opportunities provided by the complex reforms.

If you need any assistance please contact us on (08) 9489 3399

With the ATO’s compliance targeting of large businesses in the past few years reaping rewards, this tax time, its turning its attention to small businesses. As a small business owner, what do you need to be aware of to stay out of the ATO spotlight? We have the answers to that and more, contact us today and we can help you sort out your business to avoid any issues with the ATO.

If you need any assistance please contact us on (08) 9489 3399

Managing tax disputes can be like wrestling with a superhero

It is sometimes said that a superhero like the DC Comics character Superman can be uninteresting because he is, for all practical purposes, indestructible. Critics have said the knowledge that he will most likely win can make Superman’s adventures  monotonous.

A similar accusation could be levelled at the Federal Commissioner of Taxation (the flesh and bone personification of the ATO). To most people, including a hefty majority of small and medium businesses, the Commissioner appears to be immune from defeat. He has extraordinary powers – he can require a taxpayer to produce almost any documents even if he doesn’t know whether the taxpayer has done any wrong; his assessments (or amended assessments) are generally valid even if he doesn’t follow the requirements of the taxation legislation; and, perhaps most worryingly to taxpayers, he can often (but not always) enforce those assessments and recover tax debts even if that tax is subject to a dispute.

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