Well the Federal Budget came out last week and most pundits labeled it as a pretty tame affair particularly with respect to businesses. I have to agree.
There was no change for large business and the only significant change for small business was the extension & increase of the Small Business Tax Break – from 30% to 50% bonus deduction to small businesses (ie turnover under $2M) for assets acquired between 13 December 2008 to 31 December 2009.
The media have been raving about how great this measure is for small business. 50% extra deduction. Sounds great doesn’t it? Well I am not that excited for quite a few reasons as outlined below:
1. To enjoy the bonus deduction your business has to outlay extra cash to buy the assets. With times being tough, cash is king. Don’t forget my A-B-C motto of money matters – Absolutely Bloomin’ Cash – a business with poor cashflow is going to struggle in the coming months and years. Why put pressure on your cashflow if you don’t need to? I am predicting alot of businesses will get their cashflow requirements wrong & get into strife, thus putting more pressure on the economy if businesses fail.
2. So let’s say that you want to preserve your cash. And that you want to finance the purchase instead. If you need to finance then you are merely putting more pressure on the business’ balance sheet and future cashflow commitments. And business finance is not cheap these days either despite the RBA reducing the benchmark interest rate significantly in the last year. Haven’t we learnt any lessons from the global financial crisis?
3. Most businesses operate as a company. And the company tax rate is 30%. This means that you are only truly saving 15% (being 50% of 30%) on the ticketed price of an eligible asset purchase. Not 50% that some business people believe. It is only 9% for large businesses as they are only getting a 30% bonus deduction. If my business needs an asset then I am going to look at second hand first because you are saving alot more than 15% from the cost of a brand new asset. You can probably negotiate a discount of that size as well anyway!
4. The industry that is heavily promoting the 50% tax break is the car industry. God knows that this ailing industry needs a helping hand & the 50% deduction will definitely give them more customers in coming months. But remember that you need any car purchase registered in the same entity as your ABN. For small businesses this is a company structure. And we know that when companies have cars owned by them and provided for the benefit of employees and their associates that Fringe Benefits Tax may apply. If the car is hardly used – that is, less than 15,000 kilometres travelled per year – then the FBT rate is 26% of the original cost of the car … every year as well before reducing by 1/3 in the fourth year and beyond that you have the car. Yes the taxman giveth … but the taxman can taketh away too!
By all means if your business desperately needs to buy an asset then by all means go out & take advantage of this great Tax Break. But don’t go out of your way for a 50% tax deduction because it really isn’t as attractive as what you may think!
Is your business going to take advantage of the 50% Tax Break?
Monday, May 18, 2009
When your business shouldn't bother with the 50% Bonus Deduction
Monday, May 4, 2009
You may change the tax rules, but we will still find the loopholes!
Aaahh … Federal Budget week. It always brings so much joy to accountants throughout Australia. Why? Because you matter who is in Government & no matter how long they have been in power, they always feel that there is a need to tinker with the tax rules.
FBT, CGT, GST, Simple Super, Simplified Tax System, Consolidation, Personal Services Income, Investment Allowances, Senior Australians Tax Offsets, highest marginal rates, rebates … the list seems to go on & on.
And when they tinker with the tax rules, there is always one common denominator and that is that these changes always bring more work to accountants around Australia.
Legislation changes also seem to provide an opportunity for the “boring number crunchers” to show their “creative flair” to try and create a loophole to get around the tax change. Every year the government changes the tax system and every year there is a new strategy that comes into play to combat. Make no mistake, the rich – or rather their accountants’ - will always find a way to pay as little tax as possible.
Even the $900 stimulus payment has strategies like co-contributing into super to make it worth $2,250. Something simple as a handout has a loophole to make it more attractive and against the grain of its original purpose.
I am seeing a number of accountants about town with a bit of a smirk this week. This is because they have heard all the whispers and leaks of dramatic changes in next Tuesday’s budget by Mr Swan. Changes to marginal tax rates, super surcharges, stopping of imputation credits, and the like. I am not really sure if it will make a lot of difference at the end of the day.
The real winner? Not the Government. Not the poor. Not even the rich. But the accountants’ bank account of course because they get to charge more and more fees as the rich still find a way to pay the same amount as before.
Why does the Government still persist in changing the laws all the time? I don’t know but I reckon they will lose some voters next Tuesday night.
If you want to see accountants cry foul at the budget … and I mean really cry foul & not pretend that they do … make tax returns no longer compulsory and give taxpayers a cheque automatically from the Government based on an estimate of their income and expenses. A budget that takes business away from accountants … I’d like to see that!
Thursday, July 17, 2008
Why Do We All Hate The Taxman?
After talking to so many business people over the years, it is rather interesting that they all seem to have the one thing in common - they all hate the taxman.
But why do you hate the taxman?
After all, the ATO does not set the taxation rules, they simply administer them. It is the Government of the day which sets the taxation rules. On one fateful night back in September 1985, it was Paul Keating who created Fringe Benefits Tax and Capital Gains, not the taxman. It was the Howard government which introduced GST. It is not up to the ATO to abolish or remove tax legislation, but simply apply the law that is in front of them. The taxman is really no different to a policeman.
Should we get upset with the lovely police officer who issues us with a speeding ticket or thank him for save our lives by ensuring safer driving on our roads?
Shouldn't we be getting more upset with all those cash businesses that don't pay their fair share of tax? Or any tax at all?
Hands up if you know of a business that has a "cash price" that is invariably cheaper than their original price. Keep your hand up if you have dobbed that business into the taxman? I can't see that many hands up .. why not? Perhaps it has to do with the Australian way of not dobbing on your mate ... but are they really your mate if their dodgy actions mean that you are paying more tax as a result?
I love it when the taxman pounces on a dodgy character who tries to avoid paying tax.
It is the Federal Treasurer each year, in his budget speech, that sets the tax rates for the following years. Not the taxman. I am sure that if the taxman could set them himself he would reduce them to try & get a higher approval rating. He may even get a few more tickets sold to his ball each year.
If it wasn't for the taxman's efforts over the last few decades in clamping down on the wrong doers who have tried to avoid tax, then we would all be paying alot higher tax.
Did you know that when the taxman makes announcements in June of each tax year in targeting certain industries, that the average tax deductions claim falls by 23%? That is alot of cashflow savings simply by sending out a press release. Does your business have such a success rate with your cashflow when you send out a press release?
When I first started working in tax 20 years ago, I must admit that I was spooked by the taxman. I seemed to spend half the day on the phone listening to the ATO's onhold music and when I finally got through to someone, I would invariably get someone with absolutely no comprehension of the English language & would seem to be keen on simply throwing the book at anyone for getting it wrong. However in 2008, the phone calls are answered significantly quicker & the person at the other end seems alot more friendly and approachable. The internet has made it easier for accountants and business owners to access information from the ATO via its portal. Arranging a payment plan for tax is alot easier too.
Yet the public still hates the taxman and blames him for sending them bankrupt rather than look at their own inadequacy to budget and plan their cashflow for tax payments. If you make the profit then you should expect to have to pay tax. By spending all your cash on personal lavishing as nice cars & travel rather than tax is simply poor management.
I hate paying tax and agree that everyone should legitimately try to legally reduce their tax obligations with smart tax planning. But I don't hate the taxman ...
So why do you hate the taxman?
