Repeal of ‘Mining Tax’ (MRRT) and other consequential changes

You may think that the introduction of the Mining Tax and its proposed repeal by the Abbott Government would have no impact on your business.

You would be wrong in this belief.

When the MRRT was introduced, the government of the day incorporated a number of measures that ‘gave’ some of the taxes (that were expected to be collected) to small business and low income earners.

The repeal of the MRRT will now reverse some of the original ‘relief’ measures.

You need to recognise that this repeal is not yet legislation and needs to pass both Houses of Federal Parliament where it could be altered from the current proposals.

Despite that possibility, some of the measures have a time consequence which might be relevant to your business decisions in the short term, so are worth your immediate consideration.

The items listed below are the ones most likely to be of relevance and are explained briefly including the ‘timing’ aspects. In its current form, the Repeal Bill would discontinue or re-phase the following measures:

1. Repeal loss carry back for companies.

This measure ONLY applies to businesses set up as COMPANIES (and Trusts which are taxed as companies). The repeal will mean that the original measure only applies to the 2013 FY. There is no ‘tax planning’ that can be implemented to utilise this measure in 2013 – it is a question of ‘fact’ and most businesses will get no benefit for the 1 year that the rule applies.

I will speak specifically to my clients who may be able to use the measure in 2013.

2. Reduce small business immediate asset purchase write-off threshold

This is the big change.

Since 1 July 2013, small businesses have been able to claim a full deduction for capital expenditure up to $6,500 per item of plant and equipment in the year of purchase.

This is going to revert to the old limit of less than $1,000 per item if acquired after 31st December 2013. Back to the Future!!!

If your business is contemplating asset purchases greater than $999.00 and less than $6,500, it could be important to ensure that purchase is completed before 31st be entitled to the immediate write-off in 2014 Financial Year.

Assets costing $1,000 or more acquired after 31st their ‘effective life’ or may be ‘pooled’ and depreciated under the special rules applicable to small businesses as they previously were, so all that has changed is the asset purchase cost threshold will revert to its old $1,000 level.

3. Repeal accelerated depreciation for motor vehicles purchased

Since 1 July 2013, small businesses have been able to claim a $5,000 immediate deduction for the cost of new or second hand motor vehicle expenditure. The amount above $5,000 was then able to be depreciated over effective life of the asset or via the ‘pooling’ rules.

This special ‘accelerated depreciation’ for motor vehicles will be abandoned from 31st

December 2013 and such purchases will be treated the same as described in 2 above (ie revert to the $1,000 cost threshold just like any other asset).

If your business is contemplating purchasing a motor vehicle (of any price), you should consider whether the purchase is best completed before 31st to be entitled to the

$5,000 write-off in 2014 Financial Year (plus depreciation for the cost above $5,000).

4. Extend by two years the phase-in period for increase in compulsory super guarantee

Unlike 1-3 above, this change is a ‘plus’ for business cash-flows.

The current compulsory super contribution for employees has been 9.25% since 1st July 2013. This is scheduled to increase progressively until it is 12%.

The rate will remain at 9.25% until June 2016 and increase to 9.5% from 1st July 2016

The rate will still phase-up to 12% by 1st July 2021, but the 9.25% rate remains in place for an extra 2 years

5. Repeal the low income super contribution

This change won’t affect businesses – only low income earners (who of course could be the business owner).

Under the current rules, a low income earner (defined as ‘adjusted taxable income’ up to $37,000) could get an amount up to $500 contributed to their super by the Government.

The repeal of this rule will apply from 1st July 2013 so there is no ‘tax-planning’ opportunity on this measure.

This is only a brief outline of the proposed measures and need to be fully considered as applicable to your business. You should therefore speak with me before you choose to act on these matters.

Bruce Garnett

Chartered Accountants

Registered Tax Agent