The government has axed several tax concessions for small businesses when it abolished the mining tax in September 2014. Affected businesses will need to amend tax returns in which the concessions were claimed and pay back taxes. They may also need to rethink plans for buying new equipment not eligible for more generous treatment.
Many businesses will have factored tax breaks into the cost of equipment purchased over the last 12 months or more. Those investments will now be more expensive than first thought. Businesses that claimed the concessions in 2013/14 tax returns are faced with making adjustments.
The government feared that abolishing the measures prospectively would blow a big hole in the Federal Budget. They argue that businesses had ample notice of their intentions. However, businesses have been operating within the law as it stood, at least until 2 September.
Penalties and interest waived
The ATO says businesses who have already filed their 2013/14 tax return must seek an amendment if they lodged based on the repealed concessions. Shortfall penalties and interest will be waived if taxpayers amend their returns within a reasonable time (not defined).
Instant asset write-off
Under the instant asset write-off, small businesses could deduct the cost of depreciating assets of less than $6,500 in the income year in which first used or installed for use. The write-off applied in the 2012/13 tax year. It has been repealed effective from 1 January 2014, ie half way through the 2013/14 tax year.
From 1 January 2014, the immediate write-off threshold drops to $1,000. For businesses on a standard tax year ending 30 June, they will claim the write-off based on the higher amount up to 31 December 2013 and the lower amount from January 2014. Purchases made since 30 June this year are also affected.
Accelerated deduction for motor vehicles
Under this concession, applying from the 2012/13 year, small businesses could claim up to $5,000 as an immediate deduction for motor vehicles costing $6,500 or more. The undeducted value was depreciated in the general small business pool. This has been repealed from 1 January 2014. Motor vehicles costing $1,000 or more and acquired after 31 December 2013 will need to be depreciated in the general small business pool.
Tax returns filed and based on the repealed rules must be amended and tax depreciation records adjusted.
Company loss carry-back repeal
Although not specifically targeted at small businesses, the repeal of the loss carry-back tax offset may also have an impact on the sector. The loss carry-back has been repealed from 1 July 2013, limiting the concession to a single tax year — 2012/13. Under the scheme, companies could carry back tax losses from the current year for offset against the preceding year (or two years, from 2013/14) and receive a refund of previously paid tax.
The repeal could affect a company that had a tax loss in 2013/14 and has claimed the loss carry-back in its tax return. The Tax Office says it will send companies in that position a notice of amended assessment to claw back tax refunded or credited.
Geothermal energy deduction
The government repealed the immediate deduction for geothermal exploration expenditure from 1 July 2014, meaning, the tax break applies for the 2012/13 and 2013/14 tax years only. This is not a tax break targeted at small business taxpayers.
Small business entity
Concessions like the instant asset write-off and the accelerated claim for motor vehicles are available for “small business entities”. An entity is a “small business entity” if it carries on a business and its aggregated turnover in a year is less than $2m.
