How to prepare for the big SME tax changes

Unless you’ve been living in a cave, or preoccupied by the latest series of Master Chef, you’re no doubt aware of the release of the Henry Tax Review just over a week ago and Tuesday’s budget.

While most of the commentary in the media has been around how the Federal Government responded to the Henry Review with its own raft of tax reform measures, unfortunately for SMEs there hasn’t been a lot about how it will directly affect them.

So while the biggest announcement – the new 40% tax on big miners’ profits – continues to grab the headlines, what do SMEs need to know on a practical level?

Overall most of the suggested changes purely create timing differences in either reporting or claiming tax benefits.

For example, asset write-offs have been brought forward as a deduction to one year rather than claiming depreciation over the effective life of the asset, which on average is five years. As a result, SMEs get the benefit of the deduction in one hit rather than spread over multiple years; but they don’t get an extra deduction.

The measure may lead to reduced paperwork as SMEs will no longer need to keep deprecation schedules for assets costing less than $5,000.

The announced reduction of the current 30% company tax rate to 28% from 2012-13 for eligible small businesses is again a timing issue, as owners may still suffer an additional tax at their personal tax rate when they take profits out as dividends.

Also the reduction only benefits SMEs operating under a company structure, not sole traders, trusts or partnerships. Given the reduction is not due to come in until 2012-13 it might be wise to consult with your accountant about the best structure to operate under going forward.

SMEs also need to budget for the increase in the superannuation guarantee contribution rate, as it is not Government funded. Depending on the employment arrangement, the increase is funded by the employer for employees covered by an award or the employee as part of their package for those under a contract.

While it is incremental up to the 2019-20 financial year when it reaches 12%, SMEs need to ensure they keep up with the financial and reporting aspects of this change.

SMEs with self-managed super funds will welcome the Government’s review of the superannuation contribution caps from the current $25,000 for concessional contributions and $150,000 for non-concessional contributions.

Extending the $50,000 cap permanently for individual’s aged 50 is also welcome, although it is only applicable for those with balances of less than $500,000.

Overall, it is the recommendations the Government are yet to comment on that could benefit or affect SMEs most.

These include changing the definition of “small business” by increasing the turnover threshold from $2 million to $5 million; rewriting the current trust rules to reduce complexity and uncertainty; rationalising and streamlining the current small business capital gains tax concessions; GST reforms and not adopting a flow-through entity regime for closely held and fixed trusts unless there is a move away from dividend imputation in the long-term.

The devil will be in the detail once announced – watch this space.

Marc Peskett is a partner of MPR Group a Melbourne based firm providing accounting, tax, business advisory and financial services to fast growing small to medium enterprises.