What the Federal Budget means for SMEs? PART 3

This is the third and final post of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

CAPITAL INVESTMENT TAX BREAK (SMALL BUSINESS)

We have been eagerly awaiting for this part of the budget to become tax law. And, this week, this stimulus for small businesses was passed by Parliament.

The ATO will be allowing "small business" to claim an additional tax deduction of 50% on the purchase of any business assets over $1,000.

A "small business" is defined as any business that has a turnover of less than $2 million a year. The usual 30% investment allowance will still apply to businesses with turnovers over $2 million a year.

We will cover the few criterias to be met but let's run thru what the tax break means for small businesses....

OLD WAY without TAX BREAK

A business buys a company car for say, $20,000 and depreciates it over the next 8 years. Using the simple prime cost method, this means $2,500 per year.

In other words, the business gets to claim a tax deduction of $2,500 per year for the next 8 years.

NEW WAY with TAX BREAK

Per the above, the business buys a company car for $20,000 and depreciates it over the next 8 years.

However, in this case, the business gets an upfront tax deduction of $10,000 (50%) in the 1st year AND the depreciation deductions over 8 years.

In other words, the business gets to claim a tax deduction of $12,500 ($10,000 + $2,500) in the 1st year. And, the usual depreciation deduction of $2,500 ever year until Year 8.

Sounds exciting and makes you just want to go forth and spend, doesn't it? 

Well, that's the government's plan. 

But, let's run through the criterias that you have to satisfy....!

CRITERIA

1. Business turnover is less than $2 million per year

2. Asset has to be a purchased between 13 Dec 2008 and 31 Dec 2009

3. Asset has to be an eligible new tangible depreciating asset 

4. Asset has to cost over $1,000

SUMMARY

This is the small business version of the government's "$900 cash tax bonus". 

The tax break is designed to encourage small businesses to spend on capital assets to boost the economy and create jobs.

This may well be the best time to buy that tractor, van or other asset for your business. 

If you have a corporate structure with a tax rate of 30%, the government is effectively GIVING YOU the other 20% as an incentive.

SPECIAL NOTE for GROWTH BUSINESSES

For those businesses who are currently in a rapid growth phase with turnover close to $2 million per year....

If you can afford it (and need it), buy your business assets NOW whilst you are considered a "small business". That way, you can take advantage of the 50% investment allowance.

If you delay, you may only be entitled to the 30% investment allowance of businesses turning over $2 million per year.

END OF PART 3 

OF THE SME BUDGET SERIES

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the Federal Budget means for SMEs? PART 2

This is the second of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

EMPLOYEE SHARE PLANS

The government introduced a radical change to the tax treatment of employee share & option plans for those earning more than $60,000 per year. 

OLD WAY

Previously, employees were given the choice of either being taxed on the value of the shares when they receive the shares / options or at a later date when the shares / options are actually exercised. 

An upfront election also allowed the employee to receive $1,000 of the allotted shares / options tax-free.

NEW WAY

As at 12 May 2009, for those earning over $60,000, employee share/option plans will become 100% taxable at the moment which they were granted to the employees. The employee will also lose the $1,000 tax-free component.

Providing employees an equity ownership benefit is a relatively "cheap" way for SMEs to retain highly skilled but expensive employees without burdening their actual cashflow.

However, this budget amendment will raise challenges to SMEs trying to retain highly skilled executive staff. They would have to structure their employee incentive plans accordingly.

UPDATE

The government has come under fire from all directions for their decision to implement this change. We will keep everyone updated on the developments.

END OF PART 2 

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 3

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the Federal Budget means for SMEs? PART 1

This is the first of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

DIVISION 7A - PERSONAL USE OF COMPANY-OWNED ASSETS (CARS, BOATS, HOLIDAY HOMES, ETC)

Division 7A applies where the business is operating under a corporate structure. 

Div 7A basically says that any monies withdrawn by individual owners should be treated as a "deemed dividend" unless it can be proven that it is a "loan" with an appropriate interest rate and documentation. 

The government has indicated that it is thinking of including the personal use of company assets as an infringement of Div 7A as well.

Example

Say, an individual owner uses the company-owned car on the weekends (ie. 2 out of the 7 days of the week). 

The new rule says that 2/7 of the "market value" of the car use should be considered a "payment" to the owner as per Div 7A. 

So, proper documentation needs to be drafted to show that the "personal use" portion of the car is a "loan" and not a dividend payment. This is regardless of the fact that there has not been any real CASH movements.

There will issues with how the "market value" of the use of the assets will be calculated, etc. 

SUMMARY

We will update everyone as soon as the new guidelines are released. 

But, in summary, if you use your company assets for personal purposes, it may now fall under Division 7A. This includes vehicles, housing, and other assets.

This will mean that some SMEs may have to speak to their tax/legal advisers to re-evaluate their business structures.

END OF PART 1 

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 2

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What The Budget Means For Elderly Australians

Our elderly are often our weakest members of society - neglected and an afterthought for many of us. For all the contributions they have made to our workforce, our lives and our communities, we need to ensure that they have at least an adequate means of financial and community support. 

A large proportion of elderly people are surviving off the age pension and just getting by. At times, the age pension has not moved in line with the increased costs of living. We have seen the costs of rent spiral upwards and our groceries are priced at a premium. For the elderly on pensions, these basic necessities make up a large proportion of their expenditure. 

Increase in pension payments

Last night's budget handed down some very important benefits for the elderly. Single pensioners will now receive $32.49 more a week and couples will get an extra $10.14. For single pensioners, the age pension equates to 27.7% of the total male weekly wage. 

Pensioners earning $15,000 a year will be $74.14 better off each week, while people earning under $30,000 each year will have an extra $33.39 each week. This will bring them more in line with the increased costs of living so that they can afford more of life's basic necessities. 

$32 a week does not mean a lot for working Australians, but for pensioners every dollar counts. These increases in age pension payments are estimated to cost $2.7bn in 2010 and more than $3bn in 2011.

Some have been calling them the winners of the budget - but does giving someone an extra $32 a week who really needs that money to survive a winner? They are simply getting what they should be entitled to - it moves it in line with the standard of living. In any case, this announcement is welcomed by Austax.

Increase in retirement age to 67

For older australians aiming for a pension in 2017, the retirement age has been increased by 2 years. Thus, it will have go up from 65 to 67. This will be increased progressively over a 6 year period, and this new age limit will take place in 2023. The motivation behind this, is that people are working for longer, higher life expectancy and this will help fund the economy. 

We're not in favour of this announcement. The retirement age has been at 65 for 100 years, and now its increased for the first time to 67. On the one hand, the government has increased the pension and then they are telling people to work longer for it. Anyone in their mid 40's will have to work an additional 2 years to recieve the pension. We understand that people are working for longer and there is a higher life expectancy, however the government is putting a burden on our older Australians. We do not believe the retirement age should have been increased. 

Joe Hockey, the Shadow Treasurer had this to say:

"Raising retirement age by two years to 67 by 2023 was another poor initiative.

"When they promise to do things in 2023 that just shows you they are incapable of making the hard decisions to keep the economy on track," he said.

But Mr Hockey praised the government's decision to spend $14.2 billion over five years to lift the pensions of more than three million Australians and its measures to tackle the medical skills shortage."

Wayne Swan has acknowledged that this will be an unpopular move.  

Higher Income Pensioners

Pensioners on higher incomes will be disadvantaged as the Government will cut the pension by 50 cents for every dollar over the income threshold of $138 per week for singles and $240 per week for a couple. It is essentially a redistribution of income, from higher income pensioners to lower income pensioners.

Carer payments to increase

One of the announcements were were quite happy to see is that Carers get a bonus. There is a new $600 a year Carer Supplement, plus extra $600 a year allowance for each person in their care. We believe this a positive annoucement as often these people are our "unsung heroes" and sacrifice much of their time and other opportunities to take care of our elderly, the sick and other members of society. This is estimated to have a total cost of $1.8 billion over five years.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What The Budget Means For Young People

While most young people probably didn’t tune into the Budget announcement by Treasurer Wayne Swan they sure were talking about it online given #ausbudget09 and #budget09 were trending topics on Twitter last night.  Perhaps it’s the current concern over the state of the economy that has got everyone involved but deservingly so, because they will cop the recovery of the $57.6bn deficit!

Youth Allowance and Abstudy

 

But not all was doom and gloom because if you are a student looking to Youth Allowance and Abstudy as income support, the parental income test for these dependants will be increased from $32,800 to $42,559 from 1 July.  This means more students should qualify for the support (than they normally wouldn’t have) and thus be able to receive an extra buck to drink at that university bar.

First Home Buyers

 

For those who are first home buyers and have been trawling through every property inspection most weekends (along with hundreds of other keen property beans) than the 30 June deadline for the boosted first home owner grant will be extended for another six months. That means inflationary home prices will continue, the number of people you are competing with for that house/apartment will carry on and your real estate agent’s number should still be on your speed-dial.  But it does mean that up til 30 September, the grant will be the full $14,000 for existing homes and $21,000 for developed (new) homes. However, it will reduce to $10,500 for existing homes and $14,000 for developed homes from 1 October til 31 December. So the flurry of fun in the real estate market will remain.

Health Insurance

 

From 1 July 2010, a new tiered measure will affect how much government rebate you can claim, thus affecting the amount of your health insurance premiums per month. The existing 30% rebate will remain for young people with earning less than $75,000 per annum, but for salaries more than $75,000 per year the rebate will be reduced to 25%, and for salaries of $90,000 and above, the rebate will be reduced to 10%.  Start assessing what bang for your buck you can squeeze out of your health insurers!

Infrastructure & transport spending to create jobs

 

Given the extra government spending on rail, road and infrastructure networks those studying engineering and currently working in the industry should mean additional job opportunities and project involvement.  This extends to those in the country regions such as the Hunter Valley.

A Greener Nation

 

And while the carbon emissions trading scheme have been delayed, at least we can see the Government’s commitment to building a greener nation by the $4.5bn allocated to low emission coal technologies and solar initiatives. That means a lot more a cleaner future for all of us, we should hope!

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Australian Federal Budget 2009 - POLITICS 2.0

We are seeing the increased use of social media tools like Twitter and Youtube videos by government and their officials.

The recent 2009 Australian Federal Budget was no exception....!

WAYNE SWAN - TREASURER

Below is a "Behind the Scenes" video by Wayne Swan leading up to the budget night. He candidly spoke about the stress and long hours leading up to the day including a few words by his mother-in-law.

It was posted on Kevin Rudd's website, www.kevinpm.com.

JOE HOCKEY - SHADOW TREASURER

Joe Hockey also recently launched an attack on the Labor Government's 2009 budget via his website, www.joehockey.com.au.

He also released a Youtube video titled, "The Real Rudd Budget" which we have provided to you below....

PETER COSTELLO - EX-TREASURER

Peter Costello is the latest high-profile politician to jump on the bandwagon by launching his website, www.petercostello.com.au.

Although he has yet to release a personally made Youtube video (he is still a noob), he has posted a CNBC interview about the budget on his website which we have provided below...

Conclusion

There seems to be an ongoing trend by politicians to embrace social media. Politicians are now establishing websites expousing their personal brand to voters. 

This will only grow as the next generation of tech-savvy politicians move into the halls of power. 

POLITICS 2.0 IS HERE...!

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the budget means for you

We have decided to provide commentary on the budget using a series of posts as to how they affect different segments of society. There is a lot of commentary out there from the major news outlets and there is a raft of changes. 

We have simplied our analysis into "What the budget means for...."

1. The Eldery:  We have defined this as 50 years of age and over, as the budget impacts the pension and the age pension from 2017

  

2. Young people: We have defined this as 25 and under and first home buyers

3. Business: We have a particular focus on SME's (small and medium enterprise business).

There will also be some additional posts from our contributors focusing on Superannuation and the economic impact.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Australian Federal Budget 2009 - SOCIAL MARKETING

This would be of interest to our social media friends....

GOVERNMENT USES SOCIAL MEDIA..! 

The Federal Government will fund a social marketing campaign to extend and complement the Australian Better Health Initiative campaign. 

It should be interesting to see what the government comes up with.

The Fed will also pay $6 million per year to the States from 2010 as facilitation payments to reinforce local activities.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Australian Federal Budget 2009 - CASH IN vs CASH OUT

Here's a graphical recap of the governments cashflow for 2009/2010.... 

MONEY IN (REVENUE) 

$291 billion

MONEY OUT (EXPENSES) 

$338.2 billion

NET CASHFLOW

$ (47.2) billion DEFICIT

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Australian Federal Budget 2009 - INFRASTRUCTURE SPEND

Here's a graphical recap of the infrastructure spending that the government is planning.

SOCIAL INFRASTRUCTURE

CLEAN ENERGY INITIATIVE

CRITICAL INFRASTRUCTURE

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

A budget forged in the fire!

Wayne Swan delivered the federal budget tonight outlining how the government will spend $58 BN (though he never mentioned the deficit number did he?). A budget that was "forged in the fire". He made some interesting points regarding infrastrucutre spending, and drew a lot of laughter when he suggested increasing the retirement age by 2 years.  

There was a lot of chatter on twitter, so much that the hashtags for #ausbudget09 and #budget09 became trending topics after the speech was delivered. @austax microblogged the whole time while watching the speech on ABC, delivering live updates from our various correspondents. 

We're currently in lockdown in the moment, like other major news outlets, accounting firms and financial institutitions digesting all the information. We are discussing the changes and writing up some analysis - some will be ready for tonight, and there'll be more tomorrow as well. 

Watch this space!  

Cheers, 

The Austax team

The #1 provider of Australian tax news on twitter.