A win for small businesses in this year’s budget sees the retention of the $20,000 instant asset write-off for another 12 months until 30 June 2019. Of note, a limit will be imposed on the amount of cash payments made to a business. Also, a change to the R&D tax incentives, as well as deferrals to some Division 7A changes.
$20,000 instant asset write-off extended
The availability of the small business $20,000 instant asset write-off has been extended for a further 12 months to 30 June 2019. This concession was previously due to expire on June 30, 2018.
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2019. Further, the small business simplified depreciation pool can also be immediately deducted if the balance is less than $20,000 over this period.
Better targeting the R&D tax incentive
For companies with an aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.
The maximum amount of R&D expenditure eligible for concessional R&D tax offsets will be increased from $100 million to $150 million per annum.
For companies with an aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate.
Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years. The changes will apply for income years starting on or after 1 July 2018.
Cash payment limit
The Government will introduce a limit of $10,000 for cash payments made to businesses for goods and services. It is proposed to apply from 1 July 2019.
Currently, large undocumented cash payments can be used to avoid tax or to launder money from criminal activity. This measure will require transactions over a threshold to be made through an electronic payment system or cheque.
Removing tax deductibility of non-compliant payments
A tax deduction will not be allowed for the following where PAYG is not withheld:
- Payments made by businesses to contractors where the contractor does not provide an ABN.
The measure will have effect from 1 July 2019. PAYG reporting and tax withholding requirements provide integrity to the tax system. The Black Economy Taskforce recommended this action to create a further financial disincentive for businesses to engage in black economy behaviour and ensure greater compliance with tax obligations.
Targeted amendments to Division 7A deferred
The start date of the measures to make targeted amendments to Division 7A, announced in the 2016-2017 budget and originally earmarked to take affect 1 July 2018, has been deferred to 1 July 2019. The said measures proposed to improve the operation and the administration of the Division 7A provisions applicable in the case of private companies.
Application of Division 7A to unpaid present entitlements
The Government is proposing to tighten the rules regarding the application of the provisions of Division 7A to an unpaid present entitlement of a private company. This will commence from 1 July 2019
The measure will ensure the unpaid present entitlement is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.
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