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Mar 2017 3 Minutes

Two SME Hot Spots

There are a number of tax issues facing SME’s over the next 18 months that will need to be considered and planned for.  We believe these are the two most important.

Reducing Corporate Tax Rates

Corporate tax rates for Small Business Entities (SBE’s) fell to 28.5% in 2016 and are proposed to fall further to 27.5% in the current 2017 tax year.  Furthermore, it is also proposed to increase the turnover threshold for SBE’s from $2 million per annum to $10 million per annum also from the 2017 tax year (from 1 July 2016).

However the Bill to implement these changes is still before Parliament, which leaves considerable uncertainty surrounding which entities qualify as SBE’s and what benefits (and tax rate) apply to those entities in this current year.

Benefits such as the $20,000 immediate deduction for plant and equipment, the new Small Business Restructure Rollover and the use of the Cash Basis for GST purposes are a few of the benefits afforded to SBE’s.

SBE’s will therefore need to monitor whether the changes are passed in order to fully benefit from these changes this financial year.

Loans from Private Companies

Taking loans from private companies is fraught with danger and leads many a shareholder down a never ending path of forced dividend repayments, higher tax bills and multiple loan agreements just to comply with the tax laws (primarily Division 7A).

Whilst changes have been planned for Division 7A for some time, the most recent announcement from the Government was that the Board of Tax’s 2014 Review and subsequent recommendations into Division 7A would be further consulted on before a proposed new start date of 1 July 2018.

The Board’s recommendations include:

  • Making the terms of all loans 10 years, instead of 7 years (unsecured) or 25 years (secured);
  • Making Principal and interest repayments due only at the end of years 3, 5, 8 and then 10;
  • Not requiring written loan agreements for new loans;
  • Ensuring both pre 1997 loans and pre December 2009 UPE’s are required to be repaid under 10 year loans;
  • Allowing existing 25 year secured loans to continue (only if in place before 1 July 2018); and
  • Allowing a self-correction mechanism where taxpayers inadvertently breach Division 7A.

With the proposed start date of these changes just over 12 months away, SME’s should carefully consider their current Division 7A position.

If you would like to discuss the proposed SBE and/or Division 7A changes and how they may apply to you, please contact our office and ask to speak with Ariane Szabo.