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Federal Budget 2017: Business Taxation

Wednesday 10 May 2017

Government commits to remainder of 10-year package to reduce company tax rate

The Budget confirmed the Government’s intention to re-introduce the remaining elements of its 10-year Enterprise Tax Plan.
Legislative amendments already passed by the Senate will see the corporate tax rate reduced for companies with a turnover less than $50 million.

These Senate amendments are set to be approved by the House of Representatives as part of the Budget sittings. The Government said it remains committed to its 10-year Enterprise Tax Plan to eventually reduce the company tax rate to 25% for all companies.

In the 2016–2017 financial year, the reduced corporate tax rate of 27.5% will apply for businesses with an aggregated turnover of less than $10 million; $25 million turnover in 2017–2018; and $50 million turnover from 2018–2019. This effectively implements the first three years of the Government’s plan.

As per the trajectory in the Budget, the corporate tax rate will also be further reduced in stages, starting from 1 July 2024, so that it will eventually fall to 25% by the 2026–2027 financial year for businesses with an aggregated turnover of less than $50 million.

Small business measures

In addition to the reduced company tax rate, the Enterprise Tax Plan Bill includes measures to:

  • increase the small business entity aggregated turnover threshold to $10 million from 1 July 2016 – but the threshold for accessing the CGT small business concessions will remain at $2 million; and
  • increase the unincorporated small business tax discount from 5% to 16% over a 10-year period –- the threshold for accessing the discount will be $5 million (aggregated turnover).

The increase in the small business entity aggregated turnover threshold will enable a greater number of businesses to access concessions such as the simplified depreciation and trading stock rules and a two-year (instead of four-year) review period for amending assessments.

Higher instant asset write-off threshold for small business extended

The Government will extend the current instant asset write-off ($20,000 threshold) for small business entities (SBEs) by 12 months to 30 June 2018.

The threshold amount was due to return to $1,000 on 1 July 2017. As a result of this announcement, SBEs will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2018 and first used or installed ready for use by 30 June 2018 for a taxable purpose. Only a few assets are not eligible for the instant asset write-off (or other simplified depreciation rules), for example horticultural plants and in-house software.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the general small business pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

The instant asset write-off threshold and the threshold for immediate deductibility of the balance of the pool will revert to $1,000 on 1 July 2018.

Note that when the SBE changes in the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 receive assent, the aggregated turnover threshold for a SBE will increase to $10 million (from 2016–2017). Accordingly, SBEs with aggregated turnover between $2 million and $10 million will benefit from the $20,000 instant asset write-off concession.

Suspension of lock out rules extended

The suspension of the “lock out” rules for the simplified depreciation regime will be extended by 12 months until 30 June 2018. The “lock out” rules prevent SBEs from re-entering the simplified depreciation regime for five years if they opt out.

CGT small business concessions: restricted to assets used in business

The Government will amend the small business CGT concessions to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.
Division 152 of the Income Tax Assessment Act 1997 provides four concessions to eliminate, reduce and/or provide a rollover for a capital gain made on a CGT asset used in a small business:

  • the “15-year exemption”;
  • the “50% reduction”;
  • the “retirement exemption”; and
  • the “roll-over” concession.

The concessions are designed to assist owners of small businesses by providing relief from CGT on assets related to their business which helps them to re-invest and grow, as well as contribute to their retirement savings through the sale of the business.

However, some taxpayers can access these concessions for assets unrelated to their small business, eg through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The amendments to avoid this are proposed to start on 1 July 2017.The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million.

Major bank levy from 1 July 2017

The Government will introduce a major bank levy for authorised deposit-taking institutions (ADIs) with licensed entity liabilities of at least $100 billion from 1 July 2017. The threshold will be indexed to grow in line with nominal gross domestic product.
The levy will be calculated quarterly as 0.015% of an ADI’s licensed entity liabilities as at each APRA mandated quarterly reporting date (for an annualised rate of 0.06%).

Liabilities subject to the levy will include items such as corporate bonds, commercial paper, certificates of deposit, and Tier 2 capital instruments. The levy will not apply to the following liabilities: additional Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme.

The levy is expected to raise $6.2 billion over the forward estimates period, net of interactions with other taxes (principally corporate income taxes). The Government believes this represents a fair additional contribution from Australia’s major banks and will assist with budget repair.

Federal Budget 2017: Business Taxation Back