Tax cuts the budget centrepiece

The 2007 federal budget eases the tax burden on individuals and SMEs, with the promise of more next year. By TERRY HAYES of Thomson Legal & Regulatory.

By Terry Hayes

Last night’s federal budget, like the previous two, is significant from a tax perspective. Pre-budget speculation, as usual, predicted many things, but the budget itself delivered a range of taxation and related changes that will be of importance to many.

The tax centrepiece of the budget relates to personal tax measures – further significant tax cuts: the 30% threshold rises to $30,000 from July 1, 2007, and from July 1 next year the 40% threshold rises to $80,000 and, surprisingly, the top rate cuts in at $180,000. Also, there is to be a one-off doubling of the superannuation co-contribution for those people who made eligible contributions in 2005-06; an increase in the Child Care Benefit by 10% from July 1, 2007. The Child Care Benefit will be available as a direct payment soon after the end of the year, and tax-free bonus payments will be made to older Australians and carers.

Revenue measures announced

In summary, the many revenue measures announced in the 2007 federal budget include:

• Personal tax cuts: as noted above, from July 1, 2007, the 30% threshold will increase to $30,000, and from July 1, 2008, the 40% threshold will increase to $80,000 and the top rate threshold to $180,000.
• Offsets and thresholds increased: the low income offset will increase to $750; the SATO income thresholds will be increased; the dependent spouse rebate and the Medicare levy low income thresholds will be increased.
• Child Care Benefit: the rate of Child Care Benefit will be increased by 10% and the Child Care Rebate will be converted to a direct payment.
• Tax returns: the ATO will get more funding to help with pre-filling of tax returns with information.
• Small business: the GST registration threshold will be increased to $75,000; the threshold for an approved tax invoice will increase to $75; availability of simplified accounting methods for GST will be extended.
• Company losses: the $100 million cap on the same business test will be abolished, with effect from July 1, 2005.
• Consolidation: a number of changes, such as authorised deposit-taking institutions.
• Super: the Government will provide a one-off doubling of the superannution co-contribution.
• Venture capital: eligibility requirements will be relaxed.
• MIS: trading of interests in forestry managed investment schemes will be allowed.
• Films: new tax incentives for film production are provided.

As has been the case for at least the past several years, many pre-budget submissions called for further tax reforms, simplification changes and measures to reduce tax compliance costs. Notable were calls for further reform of the personal tax rate scales and/or thresholds and for a sliding or stepped scale to be applied to CGT.

The Australian Chamber of Commerce and Industry, for example, proposed the introduction of a stepped rate of CGT, where the rate of tax on capital gains would reduce to zero over time – after 10 years, for example – capital gains would no longer be taxed. Although the budget did not take up this proposal, it did nonetheless contain a surprisingly wide range of tax measures.

Small business tax measures

GST: Increase in GST registration turnover threshold

The annual turnover thresholds for registration for GST will be increased to $75,000 for businesses and to $150,000 for non-profit bodies.

As a result of this measure, businesses and non-profit bodies with a turnover between the present threshold ($50,000 or $100,000) and the proposed threshold ($75,000 or $150,000) will no longer be required to register for GST. Those that voluntarily register for GST will have the option of remitting GST annually, rather than quarterly or monthly.

Date of effect: The measure will apply with effect from July 1, 2007.

Source: Budget Paper No 2 p 16; Treasurer’s press release

Assistance program for new business owners

The Government will introduce a New Business Intensive Assistance Program to assist new business owners who may be unfamiliar with GST, record-keeping obligations and the completion of the Business Activity Statement. The Government will spend $40 million over four years to provide more face to face and telephone tax assistance to new businesses to provide advice on such matters as registering for the tax office’s business portal, establishing an effective GST record-keeping system and electronic reporting obligations, such as PAYG withholding.

Source: Treasurer’s press release

GST: Increase in threshold for approved tax invoice

Businesses will be allowed to claim input tax credits for purchases with a GST exclusive value of $75 or less without the need for an approved tax invoice.

Currently, to claim an input tax credit, businesses have to obtain an approved tax invoice for all purchases with a GST exclusive value greater than $50. However, for purchases with a GST exclusive value of $50 or less, the documentation required for income tax purposes will be sufficient to claim an input tax credit. This measure will also carry over to the “no ABN withholding” arrangements, increasing the threshold for “no ABN withholding” from $50 to $75.

Date of effect: The measure applies with effect from July 1, 2007.

Source: Budget Paper No 2 p 17; Treasurer’s press release

Annual payment of PAYG instalments when voluntarily registered for GST

The PAYG payment and reporting requirements will be aligned with the annual payment and reporting requirements for taxpayers who are voluntarily registered for GST.

Currently, taxpayers can remit PAYG annually only if they are not registered for GST and they meet other eligibility requirements. This measure will allow taxpayers who voluntarily register for GST, and who report and pay GST on an annual basis, to meet their PAYG obligations on an annual basis, subject to the other eligibility tests.

Date of effect: The measures will apply with effect from July 1, 2008.

Source: Budget Paper No 2 p 17; Treasurer’s press release

GST: Simplified accounting methods – extending availability

The tax commissioner will have the power to develop simplified accounting methods (SAMs) for all entities with an annual turnover of less than $2 million that make mixed supplies (taxable and GST free) or mixed purchases.

Currently, SAMs are restricted to retailers that sell food and to charities that make GST-free supplies. Under this measure, businesses will be able to approach the tax office to initiate the development of a SAM to simplify their GST calculations and reduce their compliance costs.

Date of effect: The measure will apply with effect from July 1, 2007.

For more details go to www.budget.gov.au.

Source: Budget Paper No 2 p 22; Treasurer’s press release