Tax 2016: Seven changes you should know about

Posted on 22/07/2016 by Blessing Furusa in Tax & Business Advice
Blessing Furusa
Blessing Furusa is a Chartered Accountant (CA) based in our Warrnambool office. He focuses on helping small to medium business owners with their accounting world.

At Sinclair Wilson, we always keep abreast of all the changes that affect our clients. We all hear about the big changes at budget time, but often these measures will not take effect until the next financial year, or (surprisingly often) the one after that. With the new financial year here and group certificates now in hand, these are some of the changes which have come into force and could affect your tax return in 2016.

Individuals

Changes to Motor Vehicle Expenses Deductions

Prior to 1 July 2015
In previous years, up to and including the 2014 -15 financial year, there were four different methods that you could use when calculating motor vehicle expense claims:

  • Cents per kilometre – claiming a set number of cents per kilometre travelled for business purposes
  • 12% of Original value – claiming 12% of your car’s original purchase price when you’ve travelled over 5000km
  • One-third of actual expenses – claiming one-third of your car’s total running costs (fuel, maintenance, etc.) when you’ve travelled over 5000km
  • Logbook – claiming a percentage of your car’s total running costs based on the percentage of its use is for business purposes (as determined by your logbook)

From 1 July 2015
This financial year, the one-third and 12% methods have been abolished, leaving you with two options for claiming motor vehicle expense deductions:

  • Cents per kilometre method (with changes)
  • Logbook method (with no changes)

Changes to the Cents per kilometre method include:

  • Separate rates based on the size of the engine are no longer available
  • The revised rate has been reduced to 66 cents per kilometre

Net Medical Expense tax offset phase – out

From 1 July 2015, you’re only able to claim this offset on your net expenses (the gap between what you pay and your Medicare refund) for disability aids and attendant care or aged care. The offset is also income tested and will be completely abolished from 1 July 2019.

Medicare levy low income thresholds for 2015/16

The Medicare Levy low income thresholds, below which no Medicare levy is payable, will be as follows in 2015/16:

Individuals $21,335 (previously $20,896)
Families $36,001 (previously $35,261)
Single Seniors and Pensioners $33,738 (previously $33,044)
Married Seniors and Pensioners $46,966 (previously $46,000)

The family income threshold (i.e., $36,001) will increase by $3,306 (previously $3,238) for each dependent child or student. e.g. For a family with 3 children, the family threshold would be $45,919 (previously $44,975).

Primary Producers

Accelerated depreciation

If you’re a farmer, you can take advantage of accelerated depreciation on some assets purchased from the 12th of May 2015:

Fencing – Can be depreciated as one lump sum rather than over 30 years
Water facilities – Can be depreciated as one lump sum rather than over 3 years
Fodder storage – Can be depreciated over 3 years rather than over 50 years

Small Business

(Those with less than $2 million aggregated annual turnover.)

Simplified depreciation for small business

In the 2015 Budget the government announced, what is commonly known as the $20,000 instant asset write-off scheme. This allows small businesses to immediately deduct most assets that cost less than $20,000 in a single tax year, rather than depreciating them slowly over time. This applies to assets purchased between 7:30pm on the 12th of May 2015 and 30th June 2017.

The scheme effectively works to give you a very large, one time deduction in a single tax return, rather than smaller deductions over many tax returns.

Additionally, if you use a ‘small business pool’ to depreciate your assets (your accountant will know if you do) and its balance is less than $20,000, you can write off the entire balance and use it as a deduction.

Company tax cuts for small business

From the 1st of July 2015 the company tax rate for small business has been cut from 30% to 28.5%. If your business structure(s) include corporate unit trusts and/or public unit trusts, this also applies to you (something else your accountant will know).

This doesn’t apply to sole proprietorships or partnerships. The tax rate for these business structures remains unchanged at 30%.

Small business income tax offset

The small business income tax offset effectively works to reduce your personal tax payable on net income from a small business source, capped at $1,000. Your tax on net income earned as a sole proprietor, or your share of net income earned by a partnership or trust, is reduced by 5% or $1,000 (whichever is lower).

e.g.

Let’s say you’re a sole trader running a small business on the side while also working your day job. You earn $16,000 net income from your business and a $60,000 salary from your day job – your tax payable is $16,247 (most of which has likely been withheld from your packets throughout the year):

As you’ve earned 21% of your income from your small business, the offset is calculated on the same proportion of your tax payable (21% of $16,247); $3,420.42. So 5% of $3,420.42 gives you an offset of $171.02. This reduces your tax payable to $16,075.98.

Tax offsets are one of the last things to be applied in the sequence of calculations involving income, expenses, deductions, credits, offsets, etc… which combine to determine how much tax you pay or get refunded. So it’s fair to say that the application of the small business income tax offset can get quite complicated. I recommend getting advice from your accountant regarding how this could apply to you.