Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (STRONGER, FAIRER, SIMPLER AND OTHER
MEASURES) BILL 2011
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Abolish the entrepreneurs' tax offset ............................. 7
Chapter 2 Increase to the small business instant asset
write-off threshold and simplified depreciation .............. 9
Chapter 3 Small business entities' deductions for motor
vehicles ....................................................................... 17
Chapter 4 Low income superannuation contribution .................... 27
Index ..................................................................................................... 33
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ATO Australian Taxation Office
Commissioner Commissioner of Taxation
IT(TP)A 1997 Income Tax (Transitional Provisions)
Act 1997
ITAA 1997 Income Tax Assessment Act 1997
RSA retirement savings account
TAA 1953 Taxation Administration Act 1953
TFN tax file number
1
General outline and financial impact
Abolish the entrepreneurs' tax offset
Schedule 1 to this Bill repeals `Subdivision 61-J -- 25% entrepreneurs'
tax offset' of the Income Tax Assessment Act 1997, abolishing the
entrepreneurs' tax offset.
Date of effect: This measure applies for the 2012-13 income year and
later income years.
Proposal announced: This measure was announced in the Deputy Prime
Minister and Treasurer's Media Release No. 045 of 8 May 2011.
Financial impact: This measure will have a revenue gain of $365 million
over the forward estimates period.
2011-12 2012-13 2013-14 2014-15
Nil Nil $180m $185m
Compliance cost impact: Nil to low.
Increase to the small business instant asset write-off
threshold and simplified depreciation
Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 by:
· increasing the small business instant asset write-off threshold
from $1,000 to $6,500; and
· consolidating the long life small business pool and the
general small business pool into a single pool to be written
off at one rate.
Date of effect: Part 1 of Schedule 2 -- the increase in the instant asset
write-off threshold from $1,000 to $5,000 and the simplified pooling
arrangements -- commences on the later day of Royal Assent of the Bills
giving effect to the Minerals Resource Rent Tax and of Royal Assent of
this Tax Laws Amendment (Stronger, Fairer, Simpler and Other
Measures) Bill 2011.
3
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
Part 2 of Schedule 2 -- the increase in the instant asset write-off threshold
from $5,000 to $6,500 will commence after the commencement of
Part 1of Schedule 2 to this Tax Laws Amendment (Stronger, Fairer,
Simpler and Other Measures) Bill 2011 and Royal Assent of the Clean
Energy Bill 2011.
Proposal announced: The increase in the instant asset write-off threshold
to $5,000 and the simplified depreciation rules were jointly announced by
the then Prime Minister and the Treasurer in the Treasurer's Media
Release No. 028 of 2 May 2010. The further increase in the instant asset
write-off threshold from $5,000 to $6,500 was jointly announced by the
Deputy Prime Minister and Treasurer, the Minister for Climate Change
and Energy Efficiency and the Minister for Small Business in the Deputy
Prime Minister and Treasurer's Media Release No. 077 of 10 July 2011.
Financial impact: This measure will have the following revenue impact:
2011-12 2012-13 2013-14 2014-15
Nil Nil -$1,160m -$1,140m
Compliance cost impact: Low. This measure will simplify existing
practice. There is no ongoing compliance cost impact and a minimal
transitional impact, reflecting the need for some taxpayers to be aware of
the amendment.
Small business entities' deductions for motor vehicles
Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to
allow small business entities to claim an accelerated initial deduction for
motor vehicles acquired in the 2012-13 and subsequent income years.
Date of effect: These amendments will commence on the day this Bill
receives Royal Assent.
Proposal announced: This measure was jointly announced by the
Deputy Prime Minister and Treasurer, the Assistant Treasurer and
Minister for Financial Services and Superannuation and the Minister for
Small Business in the Deputy Prime Minister and Treasurer's Media
Release No. 049 of 10 May 2011.
4
General outline and financial impact
Financial impact: This measure will have the following revenue impact:
2011-12 2012-13 2013-14 2014-15
Nil Nil -$200m -$150m
Compliance cost impact: Low. Taxpayers already depreciate motor
vehicles under existing practice. This will bring forward the depreciation
benefits, meaning there is no ongoing compliance cost impact and a
minimal transitional impact.
Low income superannuation contribution
Schedule 4 to this Bill amends the Superannuation (Government
Co-Contribution for Low Income Earners) Act 2003 to provide for the low
income superannuation contribution.
Date of effect: These amendments apply to the eligible concessional
contributions of an individual for a year starting on 1 July 2012. These
amendments are dependent on the passing of the Minerals Resource Rent
Tax package.
Proposal announced: This measure was announced as part of Stronger,
Fairer, Simpler: A tax plan for our future in the Treasurer's and the then
Prime Minister's joint Media Release No. 028 of 2 May 2010.
Financial Impact: This measure will have the following implications on
the underlying cash balance:
2011-12 2012-13 2013-14 2014-15
-$0.7m -$19.6m -$892.4m -$975.6m
Compliance cost impact: Minimal.
5
Chapter 1
Abolish the entrepreneurs' tax offset
Outline of chapter
1.1 Schedule 1 to this Bill 2011 repeals `Subdivision 61-J -- 25%
entrepreneurs' tax offset' of the Income Tax Assessment Act 1997
(ITAA 1997), abolishing the entrepreneurs' tax offset.
1.2 All the legislative references in this chapter are to the
ITAA 1997 unless otherwise specified.
Context of amendments
1.3 The entrepreneurs' tax offset was introduced into the
ITAA 1997 by the Tax Laws Amendment (2004 Measures No. 7) Act 2005
and applies to assessments for income years commencing on or after
1 July 2005.
1.4 The entrepreneurs' tax offset provides up to a 25 per cent tax
offset on the income tax liability attributable to business income of small
businesses that have an annual turnover of under $75,000. The benefit of
the offset begins to phase out for small businesses with an annual turnover
above $50,000 and eligibility ceases when turnover reaches $75,000. In
addition, the entrepreneurs' tax offset is subject to an income test that
restricts the eligibility of individuals whose income is over a threshold
amount ($70,000 if they are single and $120,000 if they have a family).
1.5 The Australia's Future Tax System Review noted that removing
the entrepreneurs' tax offset would reduce compliance and administration
costs and provide a more equitable and neutral treatment between
self-employment and employment income. The Australia's Future Tax
System Review recommended (recommendation 6) the abolition of the
entrepreneurs' tax offset as it is complex to administer and provides
problematic incentives related to business structure.
1.6 On 8 May 2011, the Government announced as part of the small
business tax reform package in the 2011-12 Budget that it would abolish
the entrepreneurs' tax offset from the 2012-13 income year.
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
Summary of new law
1.7 This Schedule repeals the 25 per cent entrepreneurs' tax offset
from the 2012-13 income year.
Comparison of key features of new law and current law
New law Current law
The entrepreneurs' tax offset is The entrepreneurs' tax offset provides
abolished from the 2012-13 income small businesses that have an annual
year. turnover of less than $75,000 with a
tax offset of up to 25 per cent of their
income tax liability in respect of their
business income. An income test
restricts the eligibility of individuals
whose income is over a threshold
amount for entrepreneurs' tax offset
purposes ($70,000 if they are single
and $120,000 if they have a family).
Detailed explanation of new law
1.8 This Schedule repeals the 25 per cent entrepreneurs' tax offset
from the 2012-13 income year. [Schedule 1, items 1 to 3, headings under
section 13-1, Subdivision 61-J]
Application and transitional provisions
1.9 The amendments made by this Schedule apply in relation to the
2012-13 income year and later income years. [Schedule 1, item 10]
Consequential amendments
1.10 Consequential amendments are made to the ITAA 1997, the
Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) and the
Taxation Administration Act 1953 (TAA 1953) to remove references to
the entrepreneurs' tax offset. [Schedule 1, items 4 to 9, note to
subsection 328-10(2), section 995-1, paragraphs 328-111(2)(c) and 328-112(3)(c) of the
IT(TP)A 1997, paragraph (c) of step 1 in section 45-340 in Schedule 1 to the TAA 1953]
8
Chapter 2
Increase to the small business instant
asset write-off threshold and simplified
depreciation
Outline of chapter
2.1 Schedule 2 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) by:
· increasing the small business instant asset write-off threshold
from $1,000 to $6,500; and
· consolidating the long life small business pool and the
general small business pool into a single pool to be written
off at one rate.
2.2 All legislative references in this chapter are to the ITAA 1997
unless otherwise specified.
Context of amendments
2.3 Small businesses can choose to use the capital allowance
arrangements in Subdivision 328-D to depreciate assets.
2.4 The existing capital allowance arrangements for small
businesses allow low cost assets to be written off in the year the small
business first started to use the asset or had it installed ready for use. A
low cost asset (except a horticultural plant) is defined in section 40-425 as
one which has a cost of less than $1,000 at the end of the income year in
which the asset started to be used or is installed ready for use, for a
taxable purpose.
2.5 Other depreciating assets, generally those costing $1,000 or
more, are allocated to one of two depreciation pools, depending on the
effective life of the asset: the long life small business pool or the general
small business pool. The pools are depreciated at different rates
(5 per cent or 30 per cent).
9
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
2.6 Recommendation 29 of the Australia's Future Tax System
Review (December 2009) proposed that the capital allowance
arrangements for small business be streamlined and simplified by
allowing:
· depreciating assets costing less than $10,000 to be
immediately written off; and
· all other depreciating assets (except buildings) to be pooled
together, with the value of the pool depreciated at a single
declining balance rate.
2.7 In response to this review, the Government announced on
2 May 2010 that from the 2012-13 income year small businesses would be
allowed to write off assets costing less than $5,000, and that simplified
pooling arrangements would be provided for other assets.
2.8 On 10 July 2011, the Government announced that as part of the
Clean Energy Future Plan the small business instant asset write-off
threshold would be further increased from $5,000 to $6,500.
2.9 These changes increase cash flow, reduce compliance costs,
expand the existing small business capital allowance concessions and
simplify the depreciation calculations for small businesses.
Summary of new law
2.10 From the 2012-13 income year, these amendments enable small
businesses that choose to use the capital allowance provisions in
Subdivision 328-D to:
· write off depreciating assets costing less than $6,500 in the
income year in which they start to use the asset or have it
installed ready for use for a taxable purpose during or before
that income year; and
· allocate depreciating assets costing $6,500 or more to the
general small business pool and depreciated at a rate of
15 per cent in the year of allocation and 30 per cent in
following years.
10
Increase to the small business instant asset write-off
threshold and simplified depreciation
Comparison of key features of new law and current law
New law Current law
Small businesses can write off Small businesses can write off
depreciating assets costing less than depreciating assets costing less than
$6,500 in the income year in which $1,000 in the income year in which
they start to use the asset, or have it they start to use the asset, or have it
installed ready for use, for a taxable installed ready for use, for a taxable
purpose. purpose.
Small businesses can allocate Small businesses can allocate
depreciating assets costing $6,500 or depreciating assets costing $1,000 or
more to the general small business more to either the long life small
pool to be depreciated at a rate of business pool or the general small
15 per cent in the year of allocation business pool, depending on the
and 30 per cent in other years effective life of the asset. The
irrespective of the effective life of the depreciation rates of the pools are
asset. 5 per cent and 30 per cent
respectively.
Detailed explanation of new law
2.11 These amendments increase the threshold used to identify assets
that can be written off by a small business in the year in which they start
to use the asset or have it installed ready for use, for a taxable purpose.
[Schedule 2, items 8 to 13, 68 and 69]
2.12 These amendments apply to small business entities as defined in
section 328-110 that have an aggregated turnover of less than $2 million
for an income year. Aggregated turnover is defined in section 328-115
and includes the turnover of the small business entity and certain
connected and affiliated entities. A depreciating asset is defined in
section 40-30 as an asset that has a limited effective life and can
reasonably be expected to decline in value over the time it is used.
2.13 A small business can write off (that is, claim a deduction for) a
depreciating asset which has a cost of less than $6,500 at the end of an
income year in which the business starts to use it, or has it installed ready
for use, for a taxable purpose. [Schedule 2, items 4, 8, 9 and 67 to 69]
Example 2.1: Claiming a deduction for an asset under the instant
asset write-off threshold
Kylie's Flowers is a small business entity. During the 2012-13 income
year it buys a new refrigeration unit for $3,000. As the refrigeration
unit is a depreciating asset and costs less than $6,500, the business can
claim an immediate $3,000 deduction for the 2012-13 income year.
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
2.14 The instant asset write-off for depreciating assets costing under
$6,500 is available on an asset by asset basis. It is not necessary for small
businesses to aggregate the cost of assets that are identical, substantially
identical or form part of a set.
2.15 The existing capital allowance rules about the taxable purpose
proportion of the depreciating asset still apply, and affect the amount of
the deduction that can be claimed.
2.16 If the cost of an asset is less than $6,500 but the small business
entity uses the asset only part of the time for a taxable purpose, the
deduction available would be less than the cost the asset.
Example 2.2: Writing off an asset that is used partly for a taxable
purpose and partly for a non-taxable purpose
Pablo's Newsagency is a small business entity. During the 2013-14
income year, Pablo purchases a laptop for $3,000. He uses the laptop
80 per cent of the time for business purposes and 20 per cent of the
time for personal purposes.
As the laptop cost less than $6,500 it can be written off immediately.
However, as the taxable purpose proportion is 80 per cent, the business
can claim a deduction of $2,400 (80 per cent of $3,000) for the
2013-14 income year.
2.17 If the cost of an asset is $6,500 or more, and the taxable purpose
use determines that the amount to be depreciated is less than $6,500, the
asset must be allocated to the general small business pool.
Example 2.3: Taxable purpose proportion below the instant asset
write-off threshold
Owen's Graphic Designs is a small business entity. During the
2012-13 income year it buys a new powerful computer for $6,800 that
Owen uses 80 per cent of the time for business purposes and
20 per cent of the time for personal purposes. Although the taxable
purpose proportion of the computer is $5,440 (80 per cent of $6,800)
the business cannot claim an immediate deduction for this asset. To
depreciate this asset Owen allocates $5,440 to the general small
business pool for the 2012-13 income year.
2.18 Small businesses that choose to use the capital allowance
provisions in Subdivision 328-D may also claim an immediate deduction
for the taxable purpose proportion of additions to existing assets (that cost
less than $6,500) if the addition also costs less than $6,500. [Schedule 2,
items 10 to 13 and 69]
12
Increase to the small business instant asset write-off
threshold and simplified depreciation
Example 2.4: Deduction of cost additions below the instant asset
write-off threshold
Martin's Printing buys a new industrial printer for $6,000. Martin's
Printing claims an immediate deduction of $6,000 for the printer.
Martin's Printing later spends $1,000 on a new component for the
industrial printer. The $1,000 component is a second element cost of
the printer.
As the second element cost of the printer is under $6,500, Martin's
Printing may claim an immediate deduction of the cost of the
component.
In the next income year, Martin's Printing spends $2,000 on another
new component for the industrial printer. As Martin's Printing has
already claimed a deduction for the cost addition to the printer (the first
new component), this addition must be allocated to the general small
business pool.
2.19 Existing rules for the disposal of assets that have been totally
written off continue to apply. [Schedule 2, items 45 and 72]
Simplified depreciation pooling arrangements
2.20 Depreciating assets costing $6,500 or more are depreciated using
a pooling arrangement. A pool is treated as a single depreciating asset
although it is made up of the individual costs of the depreciating assets
that are allocated to it. Pool deductions are calculated on a diminishing
value basis at a set rate. [Schedule 2, item 14]
2.21 To simplify and streamline depreciation arrangements for small
business, the long life small business pool ceases to exist after the
2011-12 income year. The closing balance of a small business' long life
pool and general small business pool for the 2011-12 income year is to be
added together to calculate the opening balance of the general small
business pool for the 2012-13 income year. [Schedule 2, items 15 and 65,
section 328-200 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997)]
Example 2.5: Consolidation of the depreciation pools for 2012-13
income year
Chantal's Cafe is a small business entity and at the end of the 2011-12
income year the closing balance of its long life pool was $8,000 and
the closing balance of its general small business pool was $10,000.
For the 2012-13 income year, Chantal's Cafe's long life pool no longer
exists, but her general small business pool opening balance is now
$18,000 (that is, $8,000 + $10,000).
13
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
2.22 The calculation of the opening balance of the general small
business pool for the 2012-13 income year is also adjusted by changes in
the proportion of the taxable purpose use of the assets allocated to the
depreciation pools.
2.23 From the 2012-13 income year the deduction for an asset
acquired during an income year and then allocated to the general small
business pool is 15 per cent of the taxable purpose proportion of its
adjustable value. The general small business pool is written off at a rate
of 30 per cent per income year thereafter. [Schedule 2, items 25, 28 and 29]
Example 2.6: Depreciation of assets acquired during the income year
and allocated to the general small business pool
Following on from Example 2.5, the opening balance of Chantal's
Cafe's general small business pool for the 2012-13 income year is
$18,000. During the year it purchased a new large oven for $7,500.
The business can deduct 15 per cent of the cost of the oven ($1,125) in
the 2012-13 income year. To calculate the deduction for the general
small business pool for the 2012-13 income year, Chantal uses a rate of
30 per cent ($18,000 × 30% = $5,400). Chantal's Cafe's total
deduction for the 2012-13 income year is $6,525
(that is, $1,125 + $5,400).
Writing off the balance of the pool
2.24 The threshold at which a small business is allowed to write off
the total balance of the general small business pool is aligned with the
instant asset write-off threshold of $6,500. [Schedule 2, items 41 to 43, 70 and
71]
Example 2.7: Writing off the balance of the general small business
pool
Justin's Gardening Pty Ltd is a small business entity and the opening
balance of its general small business pool for the 2012-13 income year
is $7,200. During the year Justin's Gardening sold a ride-on lawn
mower for $1,000. No other assets were acquired during the year. The
pool balance is adjusted ($7,200 - $1,000 = $6,200) and as it is less
than $6,500, Justin's Gardening can deduct the full pool balance of
$6,200 for the 2012-13 income year.
2.25 All other existing rules relating to depreciation pools, including
the calculation of opening and closing pool balances, and estimates of
taxable purpose proportion continue to operate.
2.26 The consolidation of the long life pool into the general small
business pool occurs regardless of whether an entity has chosen to use the
14
Increase to the small business instant asset write-off
threshold and simplified depreciation
Subdivision 328-D capital allowance provisions for the 2012-13 income
year.
2.27 If the general small business pool balance (and the long life
small business pool closing balance for the 2011-12 income year) is less
than zero, the amount by which the balance is less than zero is to be added
to the taxpayer's assessable income for that income year. The closing
pool balance for that income year is then taken to be zero.
Roll-overs
2.28 Existing section 328-250 addresses roll-over relief for certain
balancing adjustment events by working out the amounts that a small
business entity (a transferor or a transferee) can deduct for a depreciating
asset that the transferor or transferee started to use or have installed ready
for use for a taxable purpose in an income year in which the balancing
adjustment event occurred. Section 328-250 applies to deductions for
assets costing less than $6,500 and assets that are pooled. [Schedule 2,
items 55 to 60 and 72 to 74]
Application and transitional provisions
2.29 These amendments apply to assets that small businesses first use
or have installed ready for use in the 2012-13 and later income years.
[Schedule 2, items 66 and 75]
2.30 The increase in the instant asset write-off threshold from $1,000
to $5,000 will commence on the later day of Royal Assent of the Bills
giving effect to the Minerals Resource Rent Tax and of Royal Assent of
this Tax Laws Amendment (Stronger, Fairer, Simpler and Other
Measures) Bill 2011.
2.31 The increase in the instant asset write-off threshold from $5,000
to $6,500 will commence after the commencement of Part 1 of Schedule 2
to this Bill and Royal Assent of the Clean Energy Bill 2011.
Consequential amendments
2.32 Consequential amendments are made to the ITAA 1997 to
consolidate the depreciation pools by removing the small business long
life pool so that the general small business pool is the only available pool
for use. [Schedule 2, items 1 to 3, 5 to 7, 16 to 24, 26, 27, 30 to 39, 40, 44, 46 to 54 and
61 to 64]
15
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
2.33 The consequential amendments made to the IT(TP)A 1997
clarify the treatment of the general small business pooling arrangements
for the 2012-13 income year. [Schedule 2, item 65]
16
Chapter 3
Small business entities' deductions for
motor vehicles
Outline of chapter
3.1 Schedule 3 to this Bill 2011 amends the Income Tax Assessment
Act 1997 (ITAA 1997) to allow small business entities to claim an
accelerated initial deduction for motor vehicles acquired in the 2012-13
and subsequent income years.
3.2 All legislative references in this chapter are to ITAA 1997
unless otherwise specified.
Context of amendments
3.3 Small businesses can choose to use the capital allowance
arrangements in Subdivision 328-D to depreciate assets, including motor
vehicles.
3.4 As part of the 2011-12 Budget, the Government announced that
small business entities would be allowed to bring forward a deduction of
up to $5,000 for any motor vehicles purchased in the 2012-13 and
subsequent income years. The remainder of the purchase value of the
motor vehicle is depreciated through the general small business pool at
15 per cent in the first year and 30 per cent in later years.
3.5 Motor vehicles are a significant capital item for many of
Australia's 2.7 million small businesses. This accelerated initial
deduction delivers benefits by improving cash flow and helping small
businesses to reinvest and grow their businesses.
Summary of new law
3.6 From the 2012-13 income year, small business entities that
choose to use the capital allowance provisions in Subdivision 328-D can
claim up to $5,000 as an immediate deduction for a motor vehicle in the
year they start to use the motor vehicle, or have it installed ready for use,
for a taxable purpose. Taking into account the amount already written off,
17
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
the remainder of the purchase cost is depreciated as part of the general
small business pool, at 15 per cent in the first year and 30 per cent in later
years. This is an exception to the general small business capital allowance
rules for depreciating assets.
Comparison of key features of new law and current law
New law Current law
After allocating a motor vehicle to the Small businesses can write off
general small business pool, a small depreciating assets, including motor
business can claim up to $5,000 as an vehicles, costing less than $1,000 in
immediate deduction for a motor the income year in which they start to
vehicle in the income year in which use the motor vehicle, or have it
they start to use the motor vehicle, or installed ready for use, and can
have it installed ready for use. The depreciate assets costing $1,000 or
remaining value is depreciated more through the general small
through the general small business business pool at a rate of 15 per cent
pool at a rate of 15 per cent in the in the year of allocation and
first year and 30 per cent in later 30 per cent in later years.
years.
If the motor vehicle is under the
instant asset write-off threshold (an
asset to which subsection 328-180(1)
of the ITAA 1997 applies), a small
business claims a deduction under
that subsection instead of under the
special rules for motor vehicles.
Detailed explanation of new law
What is a motor vehicle
3.7 A motor vehicle is defined by subsection 955-1(1) to be any
motor powered road vehicle (including a four wheel drive vehicle). This
is not limited to new motor vehicles.
3.8 Motor vehicles do not include road vehicles if the main function
of the road vehicle is not related to public road use or if the vehicle's
ability to travel on a public road is secondary to its main function.
18
Small business entities' deductions for motor vehicles
3.9 Examples of motor vehicles that can be written off under the
small business depreciation for motor vehicles provisions include:
· cars;
· trucks;
· vans;
· utilities;
· motorbikes; and
· scooters.
3.10 Examples of vehicles that cannot be written off under the small
business deprecation for motor vehicles provisions include:
· road rollers;
· graders;
· tractors;
· combine harvesters;
· earthmoving equipment; and
· trailers.
Example 3.1: The main function of a motor vehicle is related to
public road use
Adam and John own a civil engineering business that is a small
business entity. They purchase a truck and a mini excavator. The
truck is a road vehicle and its main function is to transport soil to and
from work sites. The mini excavator is used to dig and move soil
around work sites. Sometimes the mini-excavator travels small
distances on public roads between sites -- however, this is secondary
to its main function. Therefore, the truck is a motor vehicle that can be
written off under the special small business motor vehicle depreciation
rules, but the mini-excavator is not.
Current depreciation regime
3.11 Under the existing law small business entities that choose to use
the capital allowance arrangements in Subdivision 328-D can write off
19
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
low cost assets -- that is, assets costing less than $1,000 -- in the income
year in which they start to use the asset or have it installed ready for use.
3.12 This Schedule amends the current law to increase the threshold
for a low cost asset to $5,000 and then further increases it to $6,500. The
result is that in the year a small business starts to use the depreciating
asset or has it installed ready for use, for a taxable purpose, the small
business can deduct the taxable purpose proportion of the adjustable value
of depreciating assets, such as motor vehicles, that cost less than $6,500.
3.13 Furthermore, this Schedule allows small businesses to allocate
depreciating assets costing $6,500 or more to the general small business
pool to be depreciated at a rate of 15 per cent of the taxable purpose
proportion of the adjustable value of the asset in the year of allocation to
the pool. In other years the deduction is calculated using a rate of
30 per cent.
3.14 The total balance of the general small business pool can be
written off when it falls below $6,500.
Application to motor vehicles
3.15 The existing capital allowance rules (as amended by this
Schedule) apply to motor vehicles as depreciating assets. For motor
vehicles costing less than the instant asset write-off threshold a small
business can write off the taxable purpose proportion of the adjustable
value of the motor vehicle under subsection 328-180(1) in the year it starts
to use the motor vehicle, or have it installed ready for use, for a taxable
purpose. Where that is the case, the special rules for motor vehicles do
not apply. [Schedule 3, item 3, paragraph 328-237(1)(d)]
3.16 The existing capital allowance rules also determine how to treat
second element costs of a motor vehicle.
3.17 The disposal of a motor vehicle that has been written off in full
under subsection 328-180(1), requires a small business to include the sale
amount in their assessable income.
Special rules for certain motor vehicles
Deductions in the year the small business starts to use the motor vehicle
3.18 Small business entities can claim up to $5,000 as an immediate
deduction for motor vehicles in the year they start to use the motor
vehicle, or have it installed ready for use, for a taxable purpose (`start
year'). [Schedule 3, item 3, subsection 328-237(1)]
20
Small business entities' deductions for motor vehicles
3.19 Small businesses cannot use these rules if their motor vehicle
can be written off immediately under subsection 328-180(1), that is, motor
vehicles that are written off under the instant asset write-off. [Schedule 3,
item 3, paragraph 328-237(1)(d)]
Example 3.2: A motor vehicle that is written off under the instant
asset write-off
Assume that the instant asset write-off threshold is $6,500.
Barry's Gardening Services is a small business entity and in the
2013-14 income year purchases a second-hand ute for $6,000 to
transport the business' gardening tools. The vehicle is used only for
business purposes. Barry's Gardening Services claims a deduction for
the full value of the ute ($6,000) in the start year under
subsection 328-180(1).
3.20 Where small businesses use the depreciation rules in
Subdivision 328-D, all motor vehicles that are not subject to
subsection 328-180(1) are allocated to the general small business pool in
the start year under the existing law.
3.21 Once in the pool, the deduction available in the start year
depends on the amount of the taxable purpose proportion of the adjustable
value of the motor vehicle. [Schedule 3, item 3, subsections 328-237(2) to (4)]
Treatment if the taxable purpose proportion of the adjustable value is
more than $5,000
3.22 Where the taxable purpose proportion of the adjustable value of
a motor vehicle is more than $5,000, the deduction for the start year,
comprises of:
· $5,000; and
· 15% × ((the taxable purpose proportion × the adjustable
value of the motor vehicle) - $5,000).
[Schedule 3, item 3, subsections 328-237(2) and (4)]
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
Example 3.3: Initial deduction for a motor vehicle in the start year
Flynn's Courier Service is a small business entity and in the 2012-13
income year purchases a small second hand vehicle for $14,000 to
assist with deliveries. The vehicle is only used for business purposes.
Flynn's Courier Service calculates its start year deduction in the
following way:
$5,000 + 15% × ((100% × $14,000) - $5,000) = $6,350
In the 2012-13 income year, Flynn's Courier Service can claim a
deduction of $6,350 for the motor vehicle.
Example 3.4: Deduction for a motor vehicle with partial taxable
purpose use in the start year
Following on from the previous example, in the 2014-15 income year
Flynn's Courier Service purchases a new motor vehicle for $30,000 to
help with larger deliveries. Flynn estimates that 20 per cent of his use
of the motor vehicle is for private purposes, and 80 per cent is for
taxable purposes. Flynn's Courier Service calculates its start year
deduction in the following way:
$5,000 + 15% × ((80% × $30,000) - $5,000) = $7,850
In the 2014-15 income year, Flynn's Courier Service can claim a
deduction of $7,850 for the new motor vehicle.
3.23 The calculation of 15 per cent of the taxable purpose proportion
of the adjusted value of the motor vehicle aligns with the current
depreciation of assets allocated to the general small business pool.
However, the deduction claimed under this process is in place of the
deduction under the existing subsection 328-190(2). No deduction can be
claimed under that subsection in the start year. [Schedule 3, item 1,
subsection 328-190(2A)]
Taxable purpose proportion of the adjustable value is $5,000 or less
3.24 If a small business purchases a motor vehicle to which the
special motor vehicle rules apply and allocates it to the general small
business pool, but the amount of the taxable purpose proportion of the
adjusted value is $5,000 or less, the deduction in the start year is that
amount. [Schedule 3, item 3, subsections 328-237(2) and (3)]
3.25 As the start year deduction is for the full deductible amount,
there is no remaining amount to depreciate through the general small
business pool. However, as the motor vehicle was added to the pool, the
proceeds from any subsequent disposal of that vehicle reduce the pool
value rather than form part of the assessable income of the taxpayer.
22
Small business entities' deductions for motor vehicles
Example 3.5: Initial deduction for a motor vehicle in the start year
where the taxable purpose proportion results in a deduction of less
than $5,000
Digby's Builders is a small business entity and in 2013-14 it purchases
a second hand utility for $8,000. The cost of the utility means Digby's
Builders allocates it to the general small business pool. Digby also
enjoys many outdoor adventure leisure activities and often uses the
utility to carry equipment, and travel to and from these private
activities. He estimates that 40 per cent of his use of the motor vehicle
is for private purposes and 60 per cent for taxable purposes. Digby's
Builders calculates its start year deduction in the following way:
60% × $8,000 = $4,800
In the 2013-14 income year, Digby's Builders can claim a deduction of
$4,800 for the utility (which is equal to the amount initially allocated
to the general small business pool).
The general small business pool value is less than the instant asset
write-off threshold in the year the motor vehicle is allocated to the pool
3.26 Section 328-210 operates to allow a deduction for the full
amount of the general small business pool where the balance of the pool
falls below the threshold, which (as amended by this Schedule) is $6,500.
3.27 If, in the year the motor vehicle is allocated to the general small
business pool (the start year), the pool is a low value pool (that is, the
deduction that can be claimed for the pool is less than $6,500 but more
than zero), the deduction is claimed under section 328-210 rather than the
special motor vehicle rules in this Schedule. [Schedule 3, item 3,
subsection 328-237(5)]
Example 3.6: The amount of the deduction for the general small
business pool is less than $6,500 in the start year
Hans' Florist is a small business entity. In the 2013-14 income year,
Hans buys a second hand van for $7,000 for flower deliveries. Hans
only uses the van for business purposes. In the same year, Hans'
Florist sells a large display refrigerator from his florist shop for $1,700.
The opening pool balance for the year was $1,000. Under the existing
calculations, Hans' florist works out the deduction for the general
small business pool:
$1,000 + $7,000 = $8,000 - $1,700 = $6,300
Hans' Florist can claim a deduction for the general small business pool
of $6,300, writing off the entire value of the pool.
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
The deductions for the motor vehicle are included in that deduction for
the general small business pool and no further deductions are available
for the van.
Deductions for income years other than the start year
3.28 Consistent with the current law, once the motor vehicle is
allocated to the general small business pool and a 15 per cent deduction
has been received for the start year, it forms part of the pool that is
depreciated at a rate of 30 per cent per year.
Example 3.7: Motor vehicle depreciation in the start year and later
years
Ruth's Creative Storage Solutions Pty Ltd is a small business entity.
Ruth's Creative Storage Solutions purchases a utility vehicle in the
2012-13 income year for $25,000, which is wholly used for the
business. The business' deduction for the motor vehicle for the
2012-13 income year is calculated in the following way:
$5,000 + 15% × ((100% × $25,000) - $5,000) = $8,000
In the 2012-13 income year, Ruth can claim a deduction of $8,000 for
the utility.
In the 2013-14 income year, the remaining value of the utility
($25,000 - $8,000 = $17,000) forms part of Ruth's general small
business pool and is depreciated at a rate of 30 per cent.
3.29 The general small business capital allowance rules apply to cost
addition amounts of depreciable assets, including motor vehicles.
Disposal of motor vehicle and writing off the pool balance
3.30 For income years other than the start year, all other existing
rules relating to the general small business pool, including those that relate
to asset disposal and writing off the pool balance, continue to operate.
3.31 If a motor vehicle has been allocated to the general small
business pool and the small business then sells the motor vehicle, the
balance of the pool must be adjusted by the sale amount.
Example 3.8: Sale of a motor vehicle that is allocated to the general
small business pool
Following on from Example 3.7, Ruth's Creative Storage Solutions
sells its utility in the 2014-15 income year for $14,000. As a result,
Ruth's Creative Storage Solutions must decrease the value of its
general small business pool by $14,000.
24
Small business entities' deductions for motor vehicles
3.32 Where the general small business pool balance falls below
$6,500, the total balance can be immediately written off. If the closing
balance of the general small business pool is less than zero, then the
amount by which the balance is less than zero is added to the taxpayer's
assessable income for that income year, and the closing pool balance is
taken to be zero.
Roll-overs
3.33 Existing section 328-250 addresses roll-over relief for certain
balancing adjustment events by working out the amounts that a small
business entity (a transferor or a transferee) can deduct for a depreciating
asset that the transferor or transferee started to use or have installed ready
for use for a taxable purpose in an income year in which the balancing
adjustment event occurred.
3.34 Section 328-250 applies to deductions for low cost assets and
assets that are pooled. Depending on their value, motor vehicles fall into
one of these categories. [Schedule 3, items 4 to 6, subsections 328-250(1) and (2)
and paragraph 328-250(3)(b)]
Application and transitional provisions
3.35 These amendments commence the day this Bill receives
Royal Assent.
3.36 These amendments apply for motor vehicles that small
businesses start to hold in the 2012-13 and later income years. [Schedule 3,
item 7]
Consequential amendments
3.37 Consequential amendments are made to the ITAA 1997 to
clarify the application of the write off of motor vehicles by small
businesses from the 2012-13 income year. [Schedule 3, item 2]
25
Chapter 4
Low income superannuation contribution
Outline of chapter
4.1 Schedule 4 to this Bill amends the Superannuation (Government
Co-contribution for Low Income Earners) Act 2003 to enable eligible low
income earners to receive the low income superannuation contribution.
Context of amendments
4.2 The low income superannuation contribution is part of a suite of
reforms to improve the superannuation outcomes for Australians. It is
dependent on the implementation of the Minerals Resource Rent Tax
package of Bills. It is designed to ensure a fairer distribution of
Australia's wealth in the resources boom by benefiting low income
earners.
Summary of new law
4.3 Concessional contributions are generally contributions to a
superannuation fund that receive concessional tax treatment.
Concessional contributions are generally before tax contributions that
include an employer's superannuation guarantee (SG) contributions,
contributions made under a salary sacrifice arrangement and an
individual's personal contributions that are deducted
4.4 The low income superannuation contribution seeks to effectively
return the tax paid on concessional contributions by a person's
superannuation fund or retirement savings account (RSA) provider to a
person who is a low income earner. Low income earners are defined as
individuals with an adjusted taxable income of $37,000 or less.
4.5 The maximum amount payable is $500.
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
Detailed explanation of new law
4.6 The low income superannuation contribution is a different
payment from the existing Government superannuation co-contribution
and an individual's entitlement to this payment will be the subject of a
separate determination.
4.7 The low income superannuation contribution is payable even if
an individual is not entitled to the existing Government superannuation
co-contribution.
4.8 A person is entitled to the low income superannuation
contribution if they satisfy the following requirements:
· The person has concessional contributions for the year.
· The individual's adjusted taxable income does not exceed
$37,000.
· The individual is not a holder of a temporary resident visa
(New Zealand citizens in Australia do not hold a temporary
resident visa and are as such, eligible for the payment).
· The individual satisfies an income test in which 10 per cent
or more of their total income is derived from business or
employment.
· The amount payable for the individual is $20 or more.
[Schedule 4, item 2, section 12C]
Example 4.1
Alanna is an Australian resident. She has an adjusted taxable income
of $30,000 which comprises of $2,000 in interest from her savings and
$28,000 from working part time. Alanna's employer makes SG
contributions on her behalf. These employer contributions are
concessional contributions for Alanna. Alanna is entitled to receive
the low income superannuation contribution with respect to the tax
paid on her concessional contributions, as greater than 10 per cent of
her income is from her employment.
4.9 There is no taper of adjusted taxable income. Individuals who
have an adjusted taxable income of more than $37,000 will not be eligible
for the low income superannuation contribution.
4.10 Adjusted taxable income is defined in Schedule 3 to the A New
Tax System (Family Assistance) Act 1999 (disregarding Clauses 3 and 3A
28
Low income superannuation contribution
of that Schedule) as including taxable income, adjusted fringe benefits
total, target foreign income, total net investment loss, tax-free pension or
benefit, reportable superannuation contributions less any deductible child
maintenance expenditure for that year.
4.11 When an individual does not lodge an income tax return (for
example, an individual is under the tax-free threshold), the Commissioner
of Taxation (Commissioner) will determine eligibility for the low income
superannuation contribution based on information available to the
Australian Taxation Office (ATO).
4.12 The ATO can have regard to a broad range of information when
determining of eligibility for the low income superannuation contribution.
This intended use of information is notwithstanding any other law. This
includes information already held within the ATO which has been
collected for another purpose as well as information from other agencies
with respect to the components of an individual's adjusted taxable income
and an individual's member contribution statement. The ATO can also
use information relating to an individual's tax file number (TFN) if this
has been provided to the ATO for another purpose.
4.13 These information-sharing provisions do not enable the ATO to
gather additional information with respect to an individual, but, to make
use of the information the ATO already has access to.
4.14 These information-sharing provisions allow the ATO to
automatically make a payment of the low income superannuation
contribution to a superannuation fund and operate in conjunction with
section 264 of the Income Tax Assessment Act 1936 which is a broad
information-gathering power of the ATO. This ensures that individuals
who are not required to lodge a tax return are not required to apply for the
payment.
4.15 The ATO is able to make a payment if the Commissioner is
reasonably satisfied that an individual is eligible for the payment based on
the information the ATO holds for the individual. [Schedule 4, item 3,
paragraph 14(1)(d)]
Example 4.2
Alicia is a university student and will earn $18,000 as a part time
medical receptionist in the 2012-13 income tax year and will have SG
contributions of $1,620. As Alicia will earn below the tax-free
threshold of $18,200 for that income year she may not be required to
submit an income tax return. The ATO receives information about
Alicia's income and her employer's superannuation contributions from
her member contribution statement. The ATO is reasonably satisfied
29
Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
that Alicia is eligible for the low income superannuation contribution
and makes the payment of $243 to her superannuation fund.
4.16 The ATO is able to make the payment to a superannuation fund,
an RSA, to an individual or an individual's legal personal representative
or to a Superannuation Holding Accounts Special Account consistently
with the rules for the existing government co-contributions. [Schedule 4,
item 2, section 12B]
4.17 Eligible contributions that will attract a payment of the low
income superannuation contribution must be concessional contributions of
the person. [Schedule 4, item 2, subsection 12C(b)]
4.18 `Concessional contribution' is defined in the Income Tax
Assessment Act 1997 (ITAA 1997). Examples of concessional
contributions that will be eligible include:
· SG contributions;
· notional taxed contributions;
· allocations from reserves that are concessional contributions;
· contributions an employer makes under a salary sacrifice
arrangement; or
· personal contributions which are allowed as an income tax
deduction.
4.19 As eligible concessional contributions include amounts allocated
from a fund's reserves and the notional taxed contributions worked out for
a defined benefit interest of an individual, the low income superannuation
contribution may be payable in relation to an amount that is not an actual
contribution that has been included in a fund's assessable income as a
contribution.
4.20 The ITAA 1997 defines concessional contributions as
belonging to a `complying superannuation plan'. As this legislation
incorporates the definition of `concessional contribution' from that Act, a
concessional contribution must for the purposes of the low income
superannuation contribution belong to a complying superannuation plan.
Example 4.3
Joel works for a company that has its own corporate superannuation
fund. The trustee of the superannuation fund allocates an amount from
the reserves of the superannuation fund to every member's interest in
the fund. The superannuation fund reports this amount on Joel's
30
Low income superannuation contribution
member contribution statement. The ATO may make a payment of the
low income superannuation contribution in relation to the amount
allocated to Joel's superannuation interest.
Example 4.4
Xavier is a member of a public sector superannuation scheme. His
interest in the fund is a defined benefit interest. Xavier's employer is
required to make contributions for Xavier to fund part of the
superannuation benefits payable to him (or his beneficiaries on his
death). These contributions are included in the assessable income of
the scheme. These contributions are the notional taxed contributions
for Xavier and are eligible for the low income superannuation
contribution.
Example 4.5
Yolanda is a member of a public sector superannuation scheme. Her
interest in the fund is a defined benefit interest. Notional taxed
contributions for Yolanda are worked out using the formula in the
Income Tax Assessment Regulations 1997. These notional taxed
contributions are eligible for the low income superannuation
contribution.
4.21 This payment will only apply to `concessional contributions'.
For example, payments to `constitutionally protected funds' would be
excluded.
4.22 The amount of low income superannuation contribution is
calculated at a rate of 15 per cent of the total eligible concessional
contributions for the year up to a maximum payment of $500. [Schedule 4,
item 2, paragraph 12E(2)(a)]
4.23 There is a minimum payment amount of $20. Individuals who
are entitled to less than $20 will not be matched. This ensures that the
ATO does not have to process very small amounts. [Schedule 4, item 2,
paragraph 12E(2)(c)]
4.24 The general administrative machinery provisions that apply to
the superannuation co-contribution in the Superannuation (Government
Co-contribution for Low Income Earners) Act 2003 will apply to the low
income superannuation contribution. [Schedule 4, item 2, section 12B]
4.25 When the ATO has made a payment to an individual or their
legal representative, the ATO must give information as prescribed in the
regulations when the payment is made.
4.26 The ATO may be liable to pay interest on late payments and
underpayments after certain time periods, as may be prescribed in the
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
regulations, are exceeded. The Commissioner may recover overpayments
directly from individuals or funds that the payment was made into.
4.27 If a superannuation fund is returning monies that cannot be
credited to an account, the ATO may issue an infringement notice if the
superannuation fund fails to provide the prescribed information as
required in the regulations with the returned monies.
4.28 The ATO has broad powers of entry to premises to obtain and
make copies of examinable documents to ensure compliance with the Act.
4.29 The Governor-General may make regulations pertaining to the
low income superannuation contribution.
4.30 However, the specific reporting requirements for the existing
government co-contribution do not apply to the low income
superannuation contribution.
4.31 Also, these amendments ensure appropriate income tax
consequences flow. For example, the low income superannuation
contribution will not be included in the assessable income of any
superannuation provider to which it is paid because of
subsection 295-170(1) of the ITAA 1997. The low income
superannuation contribution will also form part of the contributions
segment (and therefore tax-free component of any superannuation benefit)
for the person for whom it is paid under section 307-220 of the
ITAA 1997. [Schedule 4, item 2, section 12B]
Application and transitional provisions
4.32 These provisions apply to the 2012-13 income year and later
income years. These provisions are dependent on the passing of the
Minerals Resource Rent Tax package of Bills.
32
Index
Schedule 1: Entrepreneurs' tax offset
Bill reference Paragraph number
Items 1 to 3, headings under section 13-1, Subdivision 61-J 1.8
Items 4 to 9, note to subsection 328-10(2), section 995-1, 1.10
paragraphs 328-111(2)(c) and 328-112(3)(c) of the IT(TP)A 1997,
paragraph (c) of step 1 in section 45-340 in Schedule 1 to the
TAA 1953
Item 10 1.9
Schedule 2: Increase to the small business instant asset
write-off threshold
Bill reference Paragraph number
Items 1 to 3, 5 to 7, 16 to 24, 26, 27, 30 to 39, 40, 44, 46 to 54 and 2.32
61 to 64
Items 4, 8, 9 and 67 to 69 2.13
Items 8 to 13, 68 and 69 2.11
Items 10 to 13 and 69 2.18
Item 14 2.20
Items 15 and 65, section 328-200 of the Income Tax (Transitional 2.21
Provisions) Act 1997 (IT(TP)A 1997)
Items 25, 28 and 29 2.23
Items 41 to 43, 70 and 71 2.24
Items 45 and 72 2.19
Items 55 to 60 and 72 to 74 2.28
Item 65 2.33
Items 66 and 75 2.29
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Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011
Schedule 3: Small business entities' deductions for motor
vehicles
Bill reference Paragraph number
Item 1, subsection 328-190(2A) 3.23
Item 2 3.37
Item 3, subsection 328-237(1) 3.18
Item 3, paragraph 328-237(1)(d) 3.15, 3.19
Item 3, subsections 328-237(2) and (3) 3.24
Item 3, subsections 328-237(2) to (4) 3.21
Item 3, subsections 328-237(2) and (4) 3.22
Item 3, subsection 328-237(5) 3.27
Items 4 to 6, subsections 328-250(1) and (2) and paragraph 328- 3.34
250(3)(b)
Item 7 3.36
Schedule 4: Low income superannuation contribution
Bill reference Paragraph number
Item 2, section 12B 4.16, 4.24, 4.31
Item 2, section 12C 4.8
Item 2, subsection 12C(b) 4.17
Item 2, paragraph 12E(2)(a) 4.22
Item 2, paragraph 12E(2)(c) 4.23
Item 3, paragraph 14(1)(d) 4.15
34
35