Long time between tax drinks

The latest tax concessions for SMEs are certainly welcome, but don’t be lulled into a sense of permanent legislative largesse.

In my recent Tax manna from heaven column, I explained the details of the Government’s announcement to introduce a 20% cut in the next quarterly PAYG tax instalment for 1.3 million small businesses – that is, businesses with aggregated turnover of $2 million a year or less.

The PAYG instalment reduction is a 20% reduction to the instalment payable for the quarter that includes 31 December 2008.

Just in case there is any confusion, the reduction is a permanent reduction in that instalment payment (it does not have to be paid back later), and is not a deferral.

SMEs should also note that PAYG instalment amounts are a separate liability to the income tax liability.

The tax office says it has already written to those taxpayers it has identified as eligible for the 20% reduction, either directly or via their tax agent for those taxpayers whose activity statement/instalment notice is posted to their agent’s address.

So, those SMEs eligible for the reduction should have received a letter either directly from the tax office or via their tax agent.

Don’t forget the eligibility requirements for the reduction. Small businesses will not be eligible for the instalment reduction where they:

• Do not satisfy the small business entity $2 million aggregated turnover test. For example, any business that had an annual turnover of $2 million or more in each of the two income years before the 2008-09 income year will not be eligible.
• Have already varied the amount of the PAYG instalment for the quarter that includes 31 December 2008, or an earlier quarter for the income year.
• Pay two tax office calculated PAYG instalment amounts (that is, two instalment payers).
• Pay their instalments on the basis of their instalment income multiplied by their instalment rate.
• Are a non-business taxpayer with only investment income.

What if you’ve already paid the instalment?

According to the tax office, businesses that have already paid the full instalment amount advised on its activity statement/instalment notice for the quarter that includes 31 December 2008 may choose to:

• Do nothing. The tax office says it will treat the extra 20% amount as a voluntary payment the business has made towards its income tax liability.
• Contact the tax office on 1300 308 217 (8am to 6pm, Mon-Fri) to have the 20% amount either; (i) applied to their next PAYG instalment, or (ii) refunded.

Clarification re depreciation deductions

As I noted in my How to get your new tax deduction column last week, part of the Government’s “nation building and jobs plan” announced on 3 February 2009 included a temporary extra tax depreciation deduction for businesses.

Small businesses can claim an additional 30% tax deduction for eligible assets costing $1000 or more that they acquire from 13 December 2008 to 30 June 2009, and install ready for use by 30 June 2010.

With respect, the Government releases on this announcement were less than clear, and I have now confirmed with Treasury that the 3 February announcement of the small business and general business tax break subsumes the investment allowance measure that was announced on 12 December 2008.

That is, it is not in addition to the 12 December announced measure – it supersedes it.

Also, the extra tax depreciation deduction applies to motor vehicles as long as they are used in carrying on a business and provided the requirements to qualify for the extra deduction are met.

Needless to say, none of the above measures are yet law, although legislation to implement the 20% PAYG reduction was introduced in Federal Parliament this morning (but has not been debated yet).

It is interesting to note that the law will be changed to allow the amount of the PAYG instalment to be reduced in the future because, for example, of changing economic circumstances. Nonetheless, any SME contemplating acting on the announcements really should obtain sound advice from their accountant or adviser.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.