Budget 2012 - For business

The Budget contained a series of important changes for business.

Company tax rate to remain at 30%

In previous Budgets, the Government announced the reduction in the company tax rate to 29%.  This was to apply from 1 July 2012 for small companies and from 1 July 2013 for all other companies.

 
This reduction has now been scrapped in full and the 30% tax rate will continue to apply.

Carry back of tax losses

This is a welcome initiative that will enable companies to get some relief where their results change significantly from one year to another.  It will allow a loss made in the 2013 year to be "carried back" and offset against the profit of the 2012 year.  The refund will be claimed in the 2013 return.

The amount of prior year tax refunded will be limited to the company's franking account balance.  Payment of dividends out of the prior year profits could impact on the amount of refund received.

From the 2014 year onwards, the refund will be available for tax paid in the previous two financial years. 

In all instances, a cap on the loss amount of $1m will apply, effectively limiting the tax refund to $300,000.

Unfortunately the "carry back" of losses applies only to businesses operating through companies and has no impact on partnerships, trusts or individuals carrying on a business.  Only a relatively small percentage of small businesses are operated through companies.  The Government will release a detailed discussion paper shortly covering the specific details of the "carry back" system.

Asset write offs for small business

The Budget confirms that from 1 July 2012, small businesses with a turnover under $2 million will be able to immediately write off each business asset costing less than $6,500.  Previously the limit on immediate write offs for small businesses was $1,000 per asset.

Small businesses will also be able to claim an additional $5,000 deduction in the first year for new or used motor vehicles acquired from 1 July 2012.  This does not increase the total amount deductible, however it brings forward $5,000 of the total depreciable amount to the first year of ownership.

For businesses intending to purchase assets costing between $1,000 and $6,500, or for businesses intending to buy vehicles, we recommend deferral of the purchase until after 1 July 2012.

Living Away from Home (LAFH) Allowance changes

LAFH allowances and benefits are amounts provided either to or in respect of an employee as a result of additional costs they incur while they are away from their usual place of residence.  Such costs include accommodation expenses, and if structured properly they can essentially be treated as tax-exempt fringe benefits.

We previously updated clients in our recent Infocus newsletter on how changes were proposed to apply from 1 July 2012 in relation to LAFH allowances and benefits.  These changes would result in the following outcomes:

	LAFH allowances will no longer be deemed to be a fringe benefit and will instead be treated taxable to the recipient.
	Temporary Australian residents would only be able to utilise the concessional tax treatment of LAFH allowances and benefits where they maintain a home for their own use in Australia which they are living away from for work purposes.

As well as proceeding with the above proposals, the government announced further changes in the 2012 Budget in relation to LAFH allowances and benefits as follows:

	Now all employees must maintain a home for their own use in Australia that they are living away from for work. Previously it was possible for any employee to receive a LAFH allowance or benefit where they had sold their home but intended to return to their former area of residence (i.e. they could argue that their usual place of residence is the city or area where they previously lived).
	The concessional tax treatment will now be limited to a maximum of 12 months in respect of an individual employee for any particular work location. Previously it was possible for an employee to receive a LAFH allowance or benefit indefinitely, provided that they intended to return to their former place of residence.

These proposals will apply from 1 July 2012 for arrangements entered into after 8 May 2012 and from 1 July 2014 for existing arrangements.

Heavy vehicle road fuel tax credit to reduce

For vehicles over 4.5 tonnes operating on public roads, the fuel tax credit will reduce by 2.4 cents per litre from 1 July 2012. 

Related party bad debts not deductible

From 8 May 2012, bad debts incurred by a business arising from related party debts will not be deductible.  This will apply to businesses irrespective of whether a consolidated tax group exists.

Support for small business

The Government has announced continuing funding for the Small Business Advisory Service, which funds service providers across Australia to assist small businesses through additional support and advisory services, and the Small Business Support Line, which provides information and referral services.

In addition a new position of Australian Small Business Commissioner will be created, to represent and advocate small business interests to the Australian Government.

Additional funding has also been announced to continue the assistance to small business through the Clean Technology Program, the Clean Energy Finance Corporation and the Enterprise Connect program.

Increased funding to the Australian Taxation Office

Additional funds will be allocated to the ATO to increase GST audits and compliance activity and to continue its investigation of international transactions.  

Further funding has been allocated to manage debts owed to the ATO and we expect that this will result in more pro-active management of payment plans and additional legal action to recover outstanding debts.  

Published : 9 May 2012