With the Federal Budget for 2017-2018 less than a week away, there have been numerous proposals of policy which have been strategically released to understand the public’s reaction.
As is always the case though, we’ll be waiting to see the detail before we cast judgement on the merits of any tax changes, and to see what benefits there might be in any new rules.
Keep an eye out for our yearly Budget special edition of the Value Add in your inbox first thing Wednesday 10 May.
Also, listen to 612 ABC from 8:30am, where Ian Wood will be talking with Steve Austin about the Budget and its impact for taxpayers.
Floods and natural disasters
Have you been affected by the recent weather events, including Cyclone Debbie and the ensuing flooding? There is various government assistance available to those affected. This includes:
- Natural Disaster Relief and Recovery Arrangements which can provide financial assistance.
- Australia Taxation Office – the ATO is allowing deferral of lodgement and payment of various taxation obligations where taxpayers have been affected by natural disaster. Check their website for more details.
- QLD Disaster Management Services offer a range of assistance to those affected, including concessional loans to small business, freight subsidies to primary producers, and other assistance.
- Talk to your bank about what they can do to help you through difficulties, such as suspension of loan repayments and fee waivers
If you are needing any help, contact us at Value Beyond to find the right assistance for you.
Cuts To The Company Tax Rate
Following proposals in last year’s Federal Budget, parliament has finally passed legislation which will reduce the company tax rate for small businesses to 27.5% for the 2016/2017 financial year.
The threshold for small business has also been raised from $2 million group turnover, to $10 million.
This increased threshold also applies for the purposes of claiming deductions for immediate write off of assets costing less than $20,000 (GST exclusive). The tax cuts will then apply to entities with turnover under $50 million from the 2018/2019 financial year.
How can I take advantage of this change?
Firstly, to benefit from the 27.5% tax rate, you must be operating a small business in a company.
If you are operating a small business as an individual, or are a beneficiary of a trust that runs a small business, there is a tax offset available. This tax offset is capped at $1,000.
The second key aspect is that you must be operating a business in that company.
What classifies as a business? There is some guidance from the ATO that suggests that even if a company had a rental property that was deriving passive rental income, this could be treated as the company being the business of operating a rental property, as there is an assumption that companies are generally in business by the nature of their existence.
You must also meet the turnover threshold tests. To fall under the $10 million turnover, the entity and all grouped entities total turnover must be less than $10 million. This may require a review to determine what entities will form part of the group, to then be able to work out the group turnover and ensure it falls under the threshold.
Further to the tax rate cut, there are consequential changes to the way that dividends from those companies are franked, and the level to which they are franked in each given year.
If you have any questions, or want to know more about how the new rules will affect you and your tax position, contact us at Value Beyond to arrange a tax review.
How Will Higher Interest Rates Impact You?
While the Reserve Bank has left interest rates at a record low 1.5% cash rate, a number of banks have raised their interest rates on a number of their lending products.
Banks have also tightened their lending criteria when assessing loans, and are currently assessing serviceability of loans at 7.5% to 8.0% when deciding whether to lend to customers.
What does this mean for me and my finances?
Given that banks are raising rates and determining whether loans can be paid back at higher interest rates indicates that they believe rates will rise in the future. This is probably not too surprising given that we have had record low rates for quite a while now.
The lesson in this is to look at your debts and your income levels and work out if you can afford to keep making repayments if interest rates were to double. This is a good stress test to take stock of your financial position and your ability to absorb interest rate rises.
Once this exercise has been completed, then you have a number of options to try and improve your position, including:
- pay down more debt now while interest rates are lower – this is a good strategy in any event, as the higher the repayments you make, the more principal you are paying off. This provides you more equity should you need to borrow again in the future
- Pay down the highest interest rate debt, and non-deductible debt – it is a no-brainer: the more interest you save, the more money you will have to pay down principal and to spend in your household budget
- Get advice on whether locking in fixed rates is a good idea – while some rates have already risen, it might be worth getting advice on whether locking in fixed rates will help with certainty in your household budget should rates go on the rise in the near future
- Earn more income – another no brainer! If you make more money, this gives you the ability to pay down debt faster, and get yourself into a better financial position much more easily.
If you have any concerns about your financial position, or you are looking for a review or second opinion on your loans, contact us at Value Beyond to put you in touch with the professionals to help you.
ATO To Report Tax Debts To Credit Agencies
From 1 July 2017, the government proposes to have legislation in place that allows the Australian Taxation Office to disclose tax debt information to credit reporting bureaus. The proposed criteria for debts that will be reported includes:
- the balance is $10,000 or higher
- the amount has been outstanding for more than 90 days
- the taxpayer has an ABN
- the taxpayer is not in a payment plan with the ATO; and
- the taxpayer is not in formal dispute with the ATO
While this is only a proposal and no legislation has been introduced into parliament, it does raise a number of questions as to how it might work in practice and what the impact might be for those whose tax debt is reported.
The key to avoid this issue, remains as always:
- pay your tax debts – this is a no brainer, the sooner they are paid off, the easier it will be on your finances
- communicate with the ATO – if you don’t talk to the ATO, they can only assume you are avoiding your obligations and they will then take further action to recover the debt
- arrange a payment plan where possible – this gives you an extension on paying the debt so recovery action isn’t taken, plus it allows you to stretch the payment terms over a longer period
Of course, the best course of action is to keep on top of your tax obligations. This includes knowing when lodgement and payment due dates are, as well as keeping tabs on how much your upcoming tax payments will be so you can put the money aside and be ready to pay on time.
If you are struggling with your tax debts, and are not sure how to set yourself up to have the correct amount of money, get in touch with us at Value Beyond to run you through:
- Our 4 Phase Cash Flow Planner – it lays out how much you need to budget for to make sure you cover all your obligations
- Our Cash Flow Masterclass – this guides you through the fundamentals of cash flow, and gives you practical tips on how to manage it to meet all your obligations
- Our Business Review – this in depth review of your business will take you right through your numbers, so that you can understand your weakness, and find areas for improving your strengths to both increase profit and improve your cash flow management.
9 May 2017
Federal Budget for 2017-2018 released
15 May 2017
Lodgement of all tax returns that did not have to lodge earlier, and payment by companies and super funds if required
21 May 2017
Lodgement and payment of monthly April 2017 activity statements
26 May 2017
Lodgement and payment of quarterly March 2017 activity statements where lodged electronically by tax agent
28 May 2017
Payment of 2017 Fringe Benefits Tax Annual Return amount
5 June 2017
Lodgement of income tax returns that are not required earlier and are non-taxable or have a credit assessment in the latest year lodged
21 June 2017
Lodgement and payment of monthly May 2017 activity statements
25 June 2017
Lodgement of 2017 Fringe Benefits Tax Annual Return for tax agents
30 June 2017
Superannuation guarantee contributions must be paid by this date to qualify for a tax deduction in the 2016- 2017 financial year