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17 July 2014 was a big day in tax reform for Australia.  The Federal Senate finally passed the Carbon tax repeal legislation.  The mining tax (MRRT) repeal legislation was also passed by the Senate late at night (with amendments aiming to keep some low-income support measures). While the repeal of these taxes is not expected to impact SME's directly, indirectly there may be some minor cost savings.  These measures should apply from 1 July 2014.

17 July 2014 was a big day in tax reform for Australia.  The Federal Senate finally passed the Carbon tax repeal legislation.  The mining tax (MRRT) repeal legislation was also passed by the Senate late at night (with amendments aiming to keep some low-income support measures), meaning the House of Representatives must now vote on these amendments to finalise the repeal.

While the repeal of these taxes is not expected to impact SME's directly, indirectly there may be some minor cost savings.  These measures should apply from 1 July 2014.

However, part of the tax repeal packages included some cost savings measures which had the effect of:

  • repealing the Small Business upfront asset write-off deductions from 1 January 2014; and
  • repealing the loss carry back rules from 1 July 2013.

Small business will only be able to claim an instant write off for assets costing less than $6,500 for those assets purchased before 1 January 2014.  For assets acquired after that date, the up-front write off is reduced to assets costing less than $1,000.  The up front deduction for the first $5,000 of the cost of a motor vehicle has also been repealed.

Further bad news for businesses with international exposure is the introduction of a Bill proposing changes to the Thin Capitalisation rules.  These rules reduce deductions for interest on borrowings where a company has too much debt compared with equity.  The Government is proposing the 'safe harbour' debt to equity ratio should be reduced from 3:1 down to 1.5:1.  This is aimed to reduce gearing from the current safe harbour level of 75% to a more commercially realistic 60%.  Other alternate gearing ratios are also being reduced.  Where an entity's gearing exceeds these levels then interest deductions may be proportionately disallowed.

However, in positive news for small business, the floor above which the Thin Capitalisation rules operate will be increased from $250,000 to $2 Million of debt (interest) deductions per annum.  This should ease the compliance burden for SMEs.

This Bill is not yet law, but with the recent Government angst about foreign companies not paying their fair share of tax in Australia, we expect it will be passed and will apply from 1 July 2014.

For details of how these changes may affect your business, please contact Jamie Towers or your normal Hanrick Curran advisor.