BUDGET 2018 >>

MANAGING partner of Australian venture capital group OneVentures, Anne-Marie Birkill, has opened up wider discussion on the treatment of research and development after the changes announced in the 2018 Federal Budget.

“We are strong advocates for the R&D tax incentive, believing it provides capital constrained, research intensive companies like those in our portfolio with important funding to ensure they achieve their R&D objectives,” Ms Birkill said.

“We have many examples of companies that have continued to undertake R&D in Australia rather than moving to less expensive jurisdictions because the R&D tax incentive makes undertaking R&D in Australia economically viable.  

“Ideally, we would prefer there was no cap for research intensive companies however, we are realists and understand the government cannot have an uncapped and ever-expanding obligation.

“But one of the things that seems to have escaped commentary is that the R&D tax refund funds job creation – and those new employees pay tax; often at high rates as these are highly skilled roles.

“This means that the R&D tax refund is significantly offset by PAYG tax. And of course, there are all the other benefits of more R&D being done in Australia – including wealth and asset creation.”

The Federal Government announced changes to the R&D tax incentive that come into effect from July 1 this year.

A $4 million annual cap will be introduced on cash refunds for R&D claimants with aggregated annual turnover of less than $20 million. Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years.

To be excluded are R&D tax offsets for clinical trials, from the $4 million cap on cash refunds, recognising the critical role of R&D expenditure on clinical trials in developing life changing drugs and devices.

The refundable R&D tax offset is to be amended so it is a premium of 13.5 percentage points above the claimant's company tax rate for that year.

OneVentures has been directly and indirectly contributing to the debate on Australia’s R&D tax system for several years, largely through its membership of the Australian Venture Capital and Private Equity Association Limited (AVCAL). Ms Birkill is a director of AVCAL and a member of its VC working group.

www.budget.gov.au

www.one-ventures.com.au

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BUDGET 2018 >>

THE CEO of Australia’s largest specialist SME working capital provider, Peter Langham of Scottish Pacific, said the 2018 Federal Budget was generally good news for the start-up and small to medium enterprise (SME) sector.

Mr Langham said while there were no major shocks in the 2018-2019 Budget, the key initiatives that will resonate with Scottish Pacific’s SME clients were: reducing red tape and time spent on BAS compliance; continuation of the $20,000 instant asset write-off; and pressure on the black market, which could help create a level playing field for SMEs.

While the government took tax cuts for large companies off the table, the continuation of plans to reduce SME company tax was welcomed, he said.

“Our clients are SMEs, the largest employer group in Australia,” Mr Langham said. “These business owners are mostly mums and dads, who are very busy, and risking it all to run a business and have a go. 

“The personal tax cuts flagged in the Budget are welcome as this will give SME owners more money to spend – and I believe most are likely to spend it on growing the business – because it is their business.”

Anything that encourages spending is welcome by businesses of all sizes, Mr Langham said. Increased dividends through lower tax rates at the higher end should improve superannuation returns and therefore benefit most Australians in retirement.

“Infrastructure spending is good for business because of the immediate demand it creates, but also because it introduces efficiencies that should reduce SMEs’ cost of doing business,” he said.

“There are three obvious areas in the Federal Budget where more could be done for the SME sector – encouraging employment, creating more skilled labour and further simplifying company taxation.

“It wouldn’t be an easy task, but I’d love to see the Federal Government working with the states to reduce the payroll tax regime – this would be a game-changer for small business.

“A growing business gets to a certain size and this tax discourages them from employing people, so in effect it discourages growth.”

Mr Langham said Scottish Pacific experts had identified key areas in the Federal Budget that would affect SMEs:

  1. $20k instant asset write-off extended a further 12 months

This scheme, where business can claim an immediate deduction when buying an asset costing less than $20,000, was meant to come to an end on June 30, 2018, but the Federal Government has extended it for another year.

  1. Infrastructure
  • $24.5b over 10 years for nationally significant transport projects including $3.5b for strategically important roads to boost freight routes
  • $200m for Building Better Regions Fund (supporting regional infrastructure)
  • $41m allocated for national space agency
  • $1b urban congestion fund to improve city traffic flow
  1. Red tape/tax/compliance
  • The Federal Government declared BAS streamlining had saved each SME an average annual $590.
  • No new corporate rate cuts, however previously announced cuts for SMEs were still planned.
  • The government flagged moves to protect SMEs against phoenix companies who don’t pay, or large businesses putting in place unfair contracts.

www.scottishpacific.com

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BUDGET 2018 >>

BUSINESS broker Raine & Horne Business Sales principal Simon Winter believes calls to extend the $20,000 instant tax write off indefinitely are “almost certainly premature given similar incentives in the past were eventually terminated”.

In the May Federal Budget announced last week, the Federal Government extended the $20,000 instant write-off for small business clients with a turnover of less than $10 million to the June 30, 2019.

“Before the budget was released, one media poll declared that 60 percent of respondents were hoping the government would make the scheme permanent,’ Mr Winter said. 

“However, you must look at why they are doing it.

“It’s a carrot aimed at encouraging manufacturing and employment. The instant tax-write off pushes employment and manufacturing along because the write-off gives businesses the incentive to buy something new.” 

Mr Winter said the current write-off regime is also not the first time a Federal Government had introduced depreciation acceleration.

“There have been several tax breaks used by different governments over the last four decades, with different levels of depreciation acceleration used,” said Mr Winter, a Certified Practising Accountant (CPA), and a member of the Australian Institute of Accountants.

“Small businesses earned a 40 percent write-off over and above the value of the plant or equipment about 10-15 years ago that virtually no one seems to remember,” he said.

“You could buy an item for $10,000 and immediately write-off $4,000. However, you could still claim the full depreciation of the article over its lifecycle.”

With this example in mind, Mr Winter said it would be difficult to make an accelerated depreciation break such as the $20,000 instant tax-write- permanent.

“There will be circumstances that arise where it is no longer needed, which are usually related to an improvement in the economy and business confidence,” Mr Winter said.

“It might seem hard to believe but the $20,000 instant tax-write off will run its race and businesses will even forget it’s there, especially if they have sufficient plant and equipment in place.

“Once the business environment gets to this point, the impact of the instant tax-write-off on job creation and manufacturing will be negligible. At this juncture, it will be time to end the tax break.”

WORKS FOR NOW – BUT WATCH CGT

For now, however, Mr Winter said almost 90 percent of the small businesses he supports were taking advantage of the instant tax-write off.

“As such, the value of the plant and equipment owned by many small businesses is almost zero because everything they’ve bought over the last three years they’ve written off,” Mr Winter said.

“We see many businesses such as restaurants and cafes which are plant and equipment rich but with a written down value of almost nothing by taking advantage of the accelerated depreciation attached to the instant tax write-off.

“If they are buying a new refrigerator, it’ll be less than $20,000. It’s entirely tax deductible in that year. Previously these assets were written off over a number year according to the depreciation schedule for that item.”

He said where the instant tax write-off may be causing some angst for small businesses was in relation to the difference between a ‘gain on sale’ and a ‘capital gain’.

“If a business claims the full tax write-off of an asset valued at $19,000, it’s is then deemed to have no value,” Mr Winter said. “However, if the SME sells the asset for $6000 three years later, they must pay tax on this gain at its full marginal tax rate.

“They are forgetting they enjoyed the full benefit of the instant tax deduction three years ago. This sale value is deemed to be a profit by the Australian Tax Office and is called a gain on sale.

“A gain on sale occurs when a business sells an asset for more than what it is written down to.

“A gain on sale is not a capital gain and there are no capital gains tax discounts that apply to this profit. A capital gain only occurs when you sell something for more than you paid for it.”

www.businesssales.rh.com.au

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BUDGET 2018 >> THE FEDERAL Government’s 'surprise-free' Federal Budget will allow the resources sector to invest more, export more and employ more, Queensland Resources Council chief executive Ian Macfarlane said.

Mr Macfarlane said no surprises and no new taxes in the Federal Budget gave the resources sector the confidence to continuing investing, exporting and employing across Queensland.

“In Queensland, coal, minerals and LNG accounts for 78 percent of the State’s exports," Mr Macfarlance said. "The sector supports one in every eight jobs – with 38,000 direct employees and more than 280,000 full-time equivalent jobs dependent on resources. 

“The Federal Budget is based on tax cuts and jobs growth. The Budget papers show the resources sector pay more and more taxes and employ more and more Australians.

“The 2018-19 Federal Budget has forecast growth in mining exports of 4 percent in 2017-18 and 6.5 percent in 2018-19, while mining industry capital expenditure is expected to grow by 3.5 percent in 2019-20,” Mr Macfarlane said.

“The Federal Budget also is expecting an extra $3.7 billion in taxes over the next four years based on improved mining profitability on the back of higher commodity prices.”

Mr Macfarlane said Federal Budget initiatives to promote science, technology, engineering and mathematics (STEM) and develop satellite technology were positive investments for the future of the resources sector.

Specifically, the Turnbull Government is investing over $260 million to develop the satellite technology which will help the resources sector benefit manage mine infrastructure, mine safety and use more precise data for on the mine site, Mr Macfarlance said.

www.qrc.org.au

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BUDGET 2018 >> THE Australian Retailers Association (ARA) believe this year’s Federal Budget brings some much needed relief for retailers struggling in a volatile market with low growth and increased cost pressures with the promise of personal tax cuts which will drive consumer spend.

An ARA statement claimed the Budget brought "some positive news for retailers" with highlights including the GST being applied to overseas purchases from July 1, infrastructure spend and personal income tax cuts to low and middle income earners, allowing consumers to increase their spending across the sector. 

ARA executive director Russell Zimmerman said the Budget measures proved the government was committed to implementing tax cuts but believes these cuts should include all tax brackets, and are needed earlier and faster to drive consumer discretional spending.

“With this morning’s March retail trade figures showing a 3.15 percent trade growth year-on-year, retailers are still expecting the company tax rate to be lowered to sustain growth in the market and overall economy,” Mr Zimmerman said.

The positive outcomes from the Budget included the government’s commitment and investment into the Black Economy Taskforce and their implementation of the Illicit Tobacco Taskforce, to combat the illicit tobacco market.

“The ARA welcome the findings from the Black Economy Report and welcome the measures the Government has announced tonight as these initiatives will create a fairer economy for retailers,” Mr Zimmerman said.

“Funding is a great first step to tackling the Black Market as the rise in illicit tobacco consumption has severely affected local retailers and their bottom line.”

The ARA also welcomed the government’s $75 billion infrastructure investment to metro and regional areas to increase efficiency, freight, tourism and consumer access.

“Retailers are looking forward to major infrastructure projects such as the Melbourne airport rail link, Sydney’s rail freight corridor and Hobart’s new river crossing being implemented and completed as these long-awaited developments will increase consumer access and retail growth,” Mr Zimmerman said.

“Although we welcome the Treasurer’s predicted Budget surplus and fall in net debt, the ARA calls on the Government to develop a real plan to put Australia back on a track to zero debt and long-term lower taxes to ensure the longevity of Australian retail.”

About the Australian Retailers Association

Founded in 1903, the Australian Retailers Association (ARA) is Australia’s largest retail association, representing the country’s $310 billion sector, which employs more than 1.2 million people. As Australia’s leading retail peak industry body, the ARA is a strong pro-active advocate for Australian retail and works to ensure retail success by informing, protecting, advocating, educating and saving money for its 7,500 independent and national retail members throughout Australia.

www.retail.org.au or call 1300 368 041

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BUDGET 2018 >> THE FEDERAL Budget will boost confidence in the building and construction industry overall, according to Master Builders Australia. 

“Building and construction investment is a major driver of the improvement in the Budget position,” Master Builders Australia CEO Denita Wawn said.

“Reducing the tax burden on households and small business is good for the economy and good for builders. People may decide to renovate their kitchen sooner or buy their first home faster,” she said.  

“It’s also great news that our many small builders who are sole traders will also get tax relief in this Budget,” Ms Wawn said. 

“Master Builders called for more certainty for state and territory governments to sign up to the $1.5 billion Skilling Australians Fund (SAF) and the government has listened. The SAF will focus on funding for new apprentice training initiatives, that are no longer conditional on a levy of skilled migration." 

The Federal Government proposed in the Budget to make $250 million available for state and territories in this financial year, and a share of $50 million is available for governments that sign-up to the SAF prior to June 7 and $50 million per year over four years is available to states and territories who are signed up to the SAF, according to Mastger Builders.

“The government’s infrastructure budget will play a key role in setting the nation up for future prosperity.The additional $24 billion investment in infrastructure across the country will boost the productivity and liveability of our cities,” Ms Wawn said. 

“Small businesses will benefit from the extension of the $20,000 immediate tax write-off scheme until 2019. There are more SMEs in buiding and construction than any other industry and this great news for mum and dad building businesses and tradies. 

“The uncorporated small business tax discount rate will increase from 5 percent to 8 percent allowing SME builders to write-off their assets faster,” Ms Wawn said.

www.masterbuilders.com.au

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BUDGET 2018 >> DESPITE claims of taxpayers over-claiming work related expenses, the Federal Government has refrained from making any ad hoc changes to the eligibility rules -- a decision welcomed by the Institute of Public Accountants (IPA).

“We are pleased that the government has not taken away the right of individual taxpayers to claim legitimate work related expenses,” IPA chief executive officer, Andrew Conway said.

“Improving education and guidance materials in response to over claiming is also welcomed. 

“Taxpayers should consider themselves lucky indeed that that the government has retained the current framework for determining entitlement to claim expenses related to work.

“Tax professionals feared that the government would tighten the WRE eligibility rules or introduce a standard deduction regime to address the rising cost of taxpayer’s claims," Mr Conway said.

“Australia has one of most generous tax regimes when it comes to claiming work related deductions.

“Other countries have either removed this entitlement, or have stricter eligibility requirements or alternatively introduced a standard deduction regime.

“Australia’s tax system has developed a complex deductibility regime that taxpayers need to navigate under our self-assessment rules in order determine their entitlement," he said.

“The IPA does not support a standard deduction as it can lead to unfair tax treatment particularly for some employees who incur legitimate work related expenses which are not reimbursed by their employer whilst rewarding those who are fully compensated.

“Those skirting their obligations and deliberately over claiming should not rejoice as the ATO will be provided with an additional $130 million to increase compliance activities targeting individual taxpayers and their tax agents.

“The funding will go towards new compliance activities, including additional audits and prosecutions, improving education and guidance materials, pre-filling of income tax returns and improving real time messaging to tax agents and taxpayers to deter over-claiming of deductions,” Mr Conway said.

www.publicaccountants.org.au

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