Robert Goodman Accountants Blog

Got a passive corporate entity that holds an investment property or perhaps plant and equipment? The ATO has confirmed it takes a broad approach to when a company carries on a "business", which means some company taxpayers may be entitled to business tax concessions they hadn't previously considered. Find out if your company is affected.

It's often obvious when a company is carrying on a business. But many clients have companies set up in their family or business groups for a wide variety of reasons, and whether those entities carry on a "business" may be less clear. Common examples include companies that simply hold assets used by another entity in the group, that receive trust distributions, or that appear to be "inactive" because they no longer trade.

Why does it matter? Whether an entity is considered to carry on a business can affect its tax position in various ways. For example, if it carries on a business it may be able to access the instant asset write-off for small and medium businesses, deductions for start-up expenses, or in some cases the choice to account for GST on a cash basis, among various other measures.

To provide guidance, the ATO has recently published a ruling on when a company is considered to carry on a business – and it confirms that even passive, small-scale or irregular activities will often amount to a "business".

These principles apply not only to the tax concessions mentioned above, but also the specific issue of whether a company qualified for the lower corporate tax rate in the 2015–2016 and 2016–2017 years (which included a requirement that the company carry on a "business"). Therefore, if your family or business group includes company structures that might be affected, consider speaking to your adviser about your tax position in light of the ATO's views.

Profit intention is key

The ATO confirms the general principle that there's no single test to apply when determining whether a business is carried on. Rather, it's a weighing-up of many factors and this will depend on the particular facts.

However, one of those factors – the intention to make a profit – is very influential for companies. Where a company aims to make a profit, and has a prospect of profit, it is presumed that it intends to carry on a business. The ATO says once this profit intention is established, other factors (eg the size and scale of activities, and how regular and repetitive they are) may carry less weight than they would for individuals or trusts.

As a result, companies carry a stronger presumption of a business than individuals or trustees who undertake the same activities. The ATO gives the following examples of companies that are carrying on a business:

  • An inactive company with retained earnings that generate bank interest of $12,000 p.a.
  • A company that has ceased trading and now leases its plant or equipment to third party operators under a commercial lease agreement.
  • A new company that is investigating whether a proposed business would be viable, but is also deriving interest of $9,000 p.a. from the share capital held in its bank account.
  • A company that derives passive rental income from real estate at a profit. (It's important to be aware, however, that an asset you use mainly to derive rent is specifically excluded from the small business capital gains tax concessions.)
  • In some cases, corporate beneficiaries – even companies set up to repeatedly receive income distributions from a family trust. How those income amounts are then dealt with will impact whether the ATO believes a "business" is carried on.

On the other hand, companies that the ATO would not consider to be carrying on a business include those set up solely to hold and maintain personal use assets (eg a boat or holiday house of the shareholders), or those with no prospect of making a profit.

Reviewing your tax position

Contact us today to discuss how the ATO ruling may affect your company structures.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

Have you run a small business that has ceased or paused operations? Or perhaps you've been hired as an ABN contractor? The ATO is cleaning up the Australian Business Register and is on the lookout for people who may not be entitled to hold an ABN. Find out what the ATO's concerns are and understand your responsibilities as an ABN holder.

This year, the ATO has been focused on improving the integrity of the Australian Business Register (ABR). You may have even heard that the ATO has been "bulk cancelling" a large number of ABNs. So, what's the problem and how might this affect you?

When does the ATO cancel an ABN?

Only entities that "carry on an enterprise" are entitled to hold an ABN. An enterprise includes running a business, as well as other activities like leasing property or being the trustee of an SMSF. It does not include working as an employee. The ATO is focused on identifying the following types of ABN holders who are not entitled to hold their ABN:

  • businesses that are no longer active
  • businesses that hold multiple ABNs
  • workers who are incorrectly classified as contractors rather than employees (discussed below).

If your ABN is cancelled by the ATO and you think they've made a mistake, you can object to the decision within 60 days. Alternatively, if you agree with the cancellation because your business has ceased, you can re-apply for an ABN at a later time if you need it. You will receive the same 11-digit ABN, provided your business has the same structure.

It's illegal to quote an ABN that has been cancelled, so make sure you're on top of any cancellation issues.

Concerns about "sham" contracting

The ATO is also concerned that some businesses are incorrectly classifying their workers as "independent contractors" when in fact they are likely to be "employees". In such cases, the employer may ask the worker to obtain an ABN and call the arrangement "contracting". Unfortunately, this illegal practice is sometimes done to avoid paying entitlements like award wages and superannuation contributions.

You're entitled to hold an ABN if you're legitimately an independent contractor – but not if you're really an employee. The ATO says it is sensitive to this issue and understands many workers in "sham" arrangements have been placed in that difficult position by their employer.

If you're currently being hired as an ABN contractor and have concerns this may not be legitimate, contact the Fair Work Ombudsman for help. If you're a business hiring workers as independent contractors, make sure you've got it right because penalties can apply for unlawful arrangements. The ATO publishes some useful online information to help businesses work out whether their workers are employees or contractors.

Responsibilities of ABN holders

If you hold an ABN, you must update the register within 28 days of becoming aware of a relevant change. This includes things like your contact details (including your business address) and your main business activity and business category.

If you need to cancel your ABN, you can do this online. You should cancel your ABN if your business has been sold or is no longer operating. However, before cancelling your ABN you should make sure you've complied with all of your lodgment and reporting obligations.

You may also need to cancel your ABN if you're changing your business structure (eg from a sole trader to a company) and then apply for a new ABN. Of course, you should get professional advice before changing your business structure to make sure you understand the associated tax consequences.

Need help?

Don't stress over business administration – get help from the professionals. Whether you're thinking of starting a new business or need help sorting out a registration issue, we can handle all of your ABN registration needs, as well as related registrations like GST, PAYG and business names.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.   

Is your company planning to develop software as part of an experimental R&D project? You may qualify for the R&D tax incentive, even if you're not a software developer but operate in a technology-focused industry such as manufacturing. However, the activities you claim for must genuinely meet the relevant tests – and the ATO says some companies are incorrectly assuming their project qualifies. Make sure you understand the criteria before making an R&D claim.

In our modern economy, software development is a key driver of growth and innovation across many Australian industries. However, the ATO is concerned that some companies are assuming that their software development projects are eligible for the government's R&D tax incentive without properly considering their eligibility. The incentive broadly offers:

  • for companies with turnover below $20 million: a refundable tax offset of 43.5% of eligible R&D expenditure; or
  • for other companies: a non-refundable offset of 38.5%.

These offsets apply to expenditure between $20,000 and $100 million. Expenditure outside this range has different incentives.

The Department of Industry, Innovation and Science (DIIS) has recently released guidelines to help clarify the rules as they apply to software development.

The DIIS and ATO both stress that the incentive applies to specific activities, not projects as a whole. It's therefore essential to identify and document particular activities.

To qualify for the scheme, a company must have "core" R&D activities. It can then claim the offset for expenditure on those core activities (as well as for "supporting" activities that are directly related to the core activities: more below). Core activities are essentially experimental activities conducted using scientific principles to generate new knowledge. Crucially:

  • you cannot know the outcome of the experimental activities on the basis of current knowledge, information or experience;
  • the new knowledge generated must result from a systematic progression of work that involves testing of one or more hypotheses; and
  • the knowledge generated must be "new" in the sense that it's not already available and reasonably accessible in the public arena on a world-wide basis.

This is a high bar, and the guidelines note that "innovative" activities won't necessarily meet this test. The DIIS provides the following examples of activities that generally may be, or won't be, eligible:

May be eligible as core R&D activities Generally not eligible
  • developing new operating systems orlanguages
  • designing new search engines based on originaltechnologies
  • resolving conflicts within hardware or software based on the process of re-engineering asystem or a network
  • creating new or more efficient algorithms based on new techniques or approaches
  • creating new and original encryption orsecuritytechniques
  • developing business application software andinformation systems using known methods andexisting software tools
  • adding user functionality to existing programs
  • creating websites or software using existing tools
  • customising a product for a particular use, unless during this process knowledge is added that significantly improves the base program
  • routine debugging of existing systems and programs

If your software development activities don't qualify as "core" activities, you may still be able to claim these as "supporting" activities that directly relate to other core activities. For example, a manufacturer who undertakes some manufacturing R&D that genuinely qualifies as "core" R&D might be able to claim some software development that directly relates to that core R&D. The DIIS provides examples of: setting up test beds, coding algorithms that will be used in an experiment and collating a data sample that will be used to conduct a relevant experiment.

One final tip: developing software that will be used predominantly for an entity's "internal administration" is expressly excluded from being a core activity. You may still be able to claim this as a supporting activity, but only if it's undertaken for the dominant purpose of supporting the core R&D.

We're here to help

If you're thinking about a software development project, talk to us today about whether it may qualify for the R&D incentive. We can also help you register a claim and guide you through the necessary documentation requirements.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

From 1 July 2019, Single Touch Payroll (STP) reporting will become mandatory for all employers. Small businesses (ie those with fewer than 20 employees) have previously been exempt, but will now need to take action to ensure they're ready. These small businesses have a three-month transition period between 1 July and 30 September to get their STP reporting fully operational.

STP is an electronic reporting system that requires employers to submit payroll information such as salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO directly through their payroll software (or third party service provider) when they pay their employees. The government says that STP reporting will improve the ATO's ability to monitor tax and super compliance, and to take action when required.

How does it work?

You'll still pay your staff according to your regular pay cycle (eg monthly or fortnightly), but with the added requirement of submitting payroll information electronically to the ATO each cycle.

Many businesses will take care of this in-house with payroll software that can connect to the ATO. Alternatively, you can arrange for a registered tax or BAS agent to report on your behalf.

You'll still give your staff a payslip each pay cycle, but you'll no longer need to prepare payment summaries at the end of the financial year because your staff will be able to access all of their STP payroll information through the ATO website in order to prepare their tax returns.

If your business has "closely held payees" such as family members who are not paid a regular salary or wage, talk to your adviser about flexible STP reporting arrangements that may be available to you.

Simple software solutions

There are many software providers in the market offering STP-compliant software that meets the ATO's requirements. If your business already has payroll software, check with your provider whether it has been made STP-compliant and whether you need an upgrade.

If you don't have existing software or you want to find a new solution, you should refer to the ATO's website for help finding a provider. As well as publishing a list of all commercially available STP software solutions that it has approved, the ATO has a separate list of "low-cost" ($10 or less per month) and "no-cost" STP solutions that have been designed for "micro" businesses with four or fewer employees.

These have been created by third-party software developers and are designed to take only minutes to complete each pay period. They don't require the employer to maintain the software and include formats like mobile apps, web-based portals, desktop software and other simple solutions. The ATO is continually updating the list as new products are released.

Need more time?

Small businesses can start reporting any time from 1 July 2019 to 30 September 2019. If you need more time to get ready, you can apply online for a deferred start date through the ATO's business portal. You can also apply for an exemption from STP reporting for one or more financial years if you operate in an area with poor or no internet.

Get STP-ready

Don't wait until the last minute – talk to us to get started now. No matter how small or large your business is, we can help you find the right solution to match your STP reporting needs and ensure you're ready for the deadline.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

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The Tax Institute has published on its Federal Budget website a summary table setting out the Coalition and Labor policies for businesses.  

This may help you understand the competing policies being offered.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019 The Tax Institute. Brought to you by Robert Goodman Accountants.  

Have you ever taken home an item of your business' trading stock for your own personal use, or use by your family members? This is common in many businesses such as bakeries, butchers and cafés, but it does have some tax consequences. "Trading stock" means anything that you hold in the business for the purposes of manufacture, sale or exchange. An example is a café owner who consumes some of the food on hand in their café.

If you use any trading stock for personal use, you need to declare this in your business' tax return. This is because you are treated as if you sold the trading stock to someone else, and the value of that stock is therefore assessable income.

The ATO accepts two different ways of accounting for this stock: an estimate based on ATO guidelines or an actual value using your own records.

Method 1: ATO estimate

The ATO recognises that record-keeping in these circumstances is often difficult or impractical. To help business taxpayers, it publishes some estimates of personal use for selected industries. The ATO's estimates for the 2018-2019 income year are as follows:

Type of business

Amount (excl. GST) for adult/child over 16 years

Amount (excl. GST) for child 4 to 16 years old

Bakery

$1,350

$675

Butcher

$830

$415

Restaurant/café (licensed)

$4,640

$1,750

Restaurant/café (unlicensed)

$3,500

$1,750

Caterer

$3,790

$1,895

Delicatessen

$3,500

$1,750

Fruiterer/greengrocer

$800

$400

Takeaway food shop

$3,430

$1,715

Mixed business (includes milk bar, general store and convenience store)

$4,260

$2,130

 

Example: Susan runs a takeaway business and often brings home various food items for her family to eat. It is not always practical to record the value of every item she brings home. Her family includes herself, her husband and child aged 11 years. When preparing her business' tax return, she uses the ATO estimates for takeaway shops for two adults (2 x $3,430) and one child (1 x $1,715), a total of $8,575. She declares this as assessable income in her return.

Method 2: actual value

Alternatively, a business may declare the actual value of goods taken from stock. This option would suit businesses who can show that they took a lesser amount for personal use than the ATO's estimates. This option requires thorough record-keeping as you will need to keep details of the date; a description of what was taken; why it was taken; and the value of the item (excl. GST).

Get help from the professionals

Declaring private use of trading stock is just one aspect of the trading stock tax rules. Contact our office for expert assistance in preparing your business tax return. We take the stress out of taxes so that you are free to focus on running your business.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

The extension of the instant asset write-off for a further year is great news for small businesses who may be planning to purchase assets for use in their business in the near future. The key is for businesses to ensure the asset will be used in their business (or ready to use) in the year they claim the write-off, and to consider how any private use of the asset may affect their claim.

The write-off is a temporary measure that allows small businesses to claim an immediate deduction for certain capital expenditures, rather than having to deduct these costs over time. This "accelerated" depreciation deduction improves small businesses' cashflow and encourages them to reinvest amounts back into their business.

In welcome news, the government has recently announced it will extend the instant write-off opportunity for a further year and increase the asset cost threshold from $20,000 to $25,000.

Under current arrangements, small businesses with an aggregated annual turnover under $10 million, may claim an "instant" deduction (ie in the current income year's tax return) for most depreciating assets costing less than $20,000 that were first acquired on or after 12 May 2015 and first used (or first installed ready for use) for the purpose of producing assessable income on or before 30 June 2019.

This $20,000 instant write-off measure has always been a temporary arrangement, with the threshold planned to return to its usual $1,000 after 30 June 2019.

However, the government has announced it will legislate to extend the temporary arrangement for a further year until 30 June 2020. Additionally, the asset cost threshold will increase to $25,000, with effect from the date of announcement (29 January 2019).

Assets costing more than the threshold do not qualify for the instant write-off. Instead, those assets are added to a "small business pool" of depreciating assets and their costs are deducted over time (broadly, a 15% deduction in an asset's first year and a 30% deduction in later years, with the balance of the pool written off once it drops below the instant asset write-off threshold).

Private versus income-producing uses

Where an asset is not used wholly for producing assessable income, the business may only deduct a proportion of the cost and must subtract any private use proportion. However, the entire cost of the asset must still be below the $25,000 threshold to qualify for the instant asset write-off. The ATO gives two examples to illustrate how this works:

Example 1: a small business tradesperson purchases a ute for $40,000 and estimates that it will be used 40% of the time for business purposes. Even though the income-producing proportion of the asset's cost is below $25,000 (ie 40% x $40,000 = $16,000), the asset does not qualify for the write-off because the full cost is above the threshold. Instead, the $16,000 will be allocated to the tradesperson's small business pool.

Example 2: a small business owner purchases a powerful type of computer for $6,800 and estimates that it will be used 80% of the time for business purposes. The asset qualifies for the instant write-off because the entire cost is below the $25,000 threshold. The business owner may immediately deduct the income-producing part of the asset's cost, ie 80% x $6,800 = $5,440.

Is your business planning to purchase new assets?

Talk to us today for advice on how to fully utilise the instant asset write-off. The extension of the write-off may open up tax planning opportunities for your business, depending on your capital expenditure needs, cashflow position and when any new assets will be installed ready for use in the business.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

Minimum financial requirements for licensees

As part of the Queensland Government's building industry fairness reforms, new laws that strengthen the minimum financial requirements (MFR) for licensing commenced on 1 January 2019. 

The Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) allows for the MFR to be prescribed in a regulation, which is a step towards making the provisions more transparent. 

Why changes are needed 

In 2014, the reporting requirements for licensees were reduced. However, since then, numerous high-profile insolvencies have demonstrated that the Queensland Building and Construction Commission (QBCC) must be able to: 

  • better monitor licensees' financial situations 
  • take appropriate action where a licensee may not be operating a financially sustainable business. 

In September 2018, the QBCC released a discussion paper (PDF, 664KB) seeking feedback from industry and the community on the proposed new financial reporting laws.  

These laws will benefit industry and the community by: 

  • providing more transparency 
  • enabling the QBCC to better detect and mitigate the impact of potential insolvencies and corporate collapses. 

Time frame for changes 

As a result of this consultation, changes to the requirements are happening in 2 phases: 

Phase 1 began on 1 January 2019 through the new Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018 and: 

  • re-introduced mandatory annual reporting for all contractor licensees 
  • required more stringent reporting of decreases in the assets of higher-risk licensees 
  • clarified how assets are treated. 

Phase 2 will begin on 1 April 2019 and will introduce higher reporting standards for category 4–7 licensees (larger, higher risk licensees), along with the rest of the reforms.  

This phase will also involve repealing the existing MFR Board Policy and placing its provisions in a regulation. 

Summary of changes 

Key changes in the Minimum Financial Requirements Framework (PDF, 173KB) include: 

Stronger reporting requirements 

Licensees will need to: 

  • provide financial information to the QBCC annually 
  • report significant decreases in net tangible assets (20% for categories 4–7; 30% for other licensees) 
  • provide additional and more detailed financial information (for higher revenue licensees). 

Additionally, the upper revenue limit for self-certifying licensees will increase from $600,000 to $800,000. 

Inclusions for calculating a licensee's assets and revenue 

  • Personal recreational and unregistered vehicles will no longer be used to meet minimum asset thresholds. 
  • Clarification about when money in project bank accounts can be classed as an asset or revenue. 

Improved data quality and availability for the QBCC 

  • QBCC will better be able to get independent verification of an MFR report and recover costs. 
  • If an accountant makes 'material changes' to an MFR report, they'll need to clearly identify them and support with updated financial information. 
  • If a licensee relies on a deed of covenant and assurance, they'll need to give the QBCC detailed financial information about the covenantor to show they can honour their agreement. 
  • Similar requirements will be introduced for related entity loans, so the QBCC can assess whether these loans will be collectable. 

Penalties for non-compliance 

The enforcement framework is also being improved, including new penalties and offences for failing to comply with the requirements, such as failing to provide financial information annually. The new regulation outlines these penalties. 

Existing penalties continue to apply. Under the BIF Act, the QBCC can place conditions on a licence, or take steps to suspend or cancel the licence. 

Penalties also apply for providing false or misleading information, or refusing to supply financial information at the QBCC's request. 

The enforcement provisions will be further strengthened as part of Phase 2, including executive officer liability and escalating penalties, to help motivate all parties involved in running a licensed company to meet the new MFR. 

More info

Read more information about financial requirements for licensees on the QBCC website.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  Source: Qld Government Department of Housing and Public Works 23 January 2019. Brought to you by Robert Goodman Accountants. 

PAYG withholding: new penalties for non-compliance

Combating the black economy has been a key priority of the government in recent years. To reduce business activity that takes place "under the radar" of the tax system, new laws commencing on 1 July 2019 will prevent businesses from claiming deductions for payments to employees and certain contractors if they fail to comply with their pay-as-you-go (PAYG) withholding and reporting obligations. Although these measures target participants in the black economy, all businesses should understand the new laws to ensure they do not inadvertently risk losing their deductions.

To reduce business activity that takes place "under the radar" of the tax system, new laws commencing on 1 July 2019 will prevent businesses from claiming deductions for payments to employees and certain contractors if they fail to comply with their pay-as-you-go (PAYG) withholding and reporting obligations.

In 2017, a government taskforce on the black economy reported concerns that some Australian businesses are making payments to employees and contractors that are not being properly recorded. In response, the government has acted to deny deductions for payments where businesses fail to comply with the PAYG withholding and reporting rules.

Specifically, new laws commencing on 1 July 2019 will prevent an employer from claiming a deduction for payments to employees such as salary, wages, commissions and bonuses if the employer fails to:

  • withhold an amount from the payment as required under PAYG withholding rules; or
  • report a withholding amount to the ATO as required.

Deductions will similarly be denied for non-compliant payments to directors or religious practitioners, or payments under a labour-hire arrangement.

The new laws also cover non-cash payments, such as goods and services. Generally, businesses must pay a withholding amount to the ATO before making a non-cash payment (equal to the amount they would be required to withhold if the payment were money, based on the market value of the benefit). Under the new laws, businesses will not be allowed to deduct the non-cash payment if they do not comply with the withholding and reporting rules.

Special rules apply for payments to contractors. Businesses are generally required to withhold PAYG from a payment to a contractor where the contractor does not provide their ABN (known as the "no ABN withholding" rules). However, a business that fails to comply with these rules will only be denied a deduction if the payment (either cash or non-cash) relates to a contract for the supply of services; contracts for goods and real property are excluded from the operation of the new laws.

What happens if my business makes a mistake?

If you make a mistake by failing to withhold an amount (or to report it), you will not lose your deduction if you voluntarily disclose this to the ATO before it commences an audit or other compliance activity in relation to your tax affairs. However, you may still incur penalties.

Ensure your business is compliant

Now is a great time to check that your PAYG withholding affairs are in order. Taking early action to correct and disclose PAYG withholding mistakes will make a big difference to whether your business remains eligible for deductions. We can assist you with the process of correcting and disclosing to the ATO any mistakes that may arise.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

Labor’s election policies: Part 2

Labor's election policies: Part 2

Part 1 of Labor's election policies examined the potential introduction of a cap for deduction for the use of accountants and the introduction of a minimum 30% tax rate on distributions from family trusts. Both of these measures will affect a wide range of taxpayers, including individuals and small businesses. Part 2 examines Labor's well-publicised policies of negative gearing restrictions, reduction of the CGT discount, and ending excess dividend imputation.

In Part 2 of the two-part series which examines tax changes that could be coming with the possibility of Labor winning government next year, we look at Labor's well-publicised policies of negative gearing restrictions, reduction of the CGT discount, and ending excess dividend imputation. These policies are wide-ranging and may affect a broad group of taxpayers including individuals, retirees and SMSFs.

If you hold any investments (not just property), you may be subject to Labor's negative gearing restrictions for investors. From a specific date after the next election (ie the changes will not apply retrospectively and all investments made before the specific date will be grandfathered), negative gearing will be limited to newly-constructed housing. However, the restrictions would apply on a global basis for every taxpayer.

For example, Ian obtains a loan to buy shares after Labor's negative gearing restrictions come into effect, shortly after he receives an unexpected windfall and uses the money to purchase 2 properties. One of his properties is positively geared and one is negatively geared, while the shares are neutral. As long as the investment income exceeds total interest and deductions related to all his investments (ie 2 properties plus shares), then Ian will be able to deduct the full amount of the interest and deductions. However, if the total interest and deductions exceed the total investment income, the excess cannot be offset against other non-investment income and needs to be carried forward to be offset against future investment income or capital gains.

As you can see from the example, the policy would benefit those with multiple investments, whether it be shares, managed funds or property. As long as some of the investments are positively geared then there is still a benefit to be had. For the new "rentvesting" generation, this change may impact on any potential investments they may want to make in the future and quarantining of excess losses may need to be factored into investment decisions.

Labor is also planning to reduce the CGT discount for assets held longer than 12 months from 50% to 25%. Again, the changes will apply from a yet-to-be-determined date after the next election and all investments made before this date will be fully grandfathered. This means that if you purchase an investment after the specified date and sell it after 12 months and the capital gains on the investment is $5,000, you could end up paying anywhere between $200 to $500 in excess tax depending on your tax bracket.

Perhaps the most well-publicised policy in Labor's election package is the elimination of excess dividend imputation. Simply, this is denying individuals and super funds the right to receive a cash refund from the ATO if their imputation credits from dividends exceed the tax they have to pay. When this proposal was first announced, it drew the ire from multiple fronts including retirees and SMSF associations. A concession was then made to exempt pensioners which means the policy is now targeted at low-income earners, self-funded retirees not on the pension, and SMSFs without a pensioner member.

What to do now?

Now that you have all the information on potential tax changes that could be coming your way, it may be a good time to start thinking about whether you will be affected by any of the changes. If you think you may be affected, we can help you put plans in place that will minimise the impact. Contact us today if you would like some expert advice.  

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.