No relief for small business
There is not much immediate relief for small business. The only tangible immediate benefit is potentially lower PAYG income tax instalments for those taxpayers who use the ATO-calculated GDP instalment option. The uplift factor applied is to be reduced by half for the 2011/12 income year. Small business will need to wait until the 2012/13 income year to access the $5000 immediate write-off of small assets and the similar $5000 immediate write-off of any motor vehicle purchased.
Small businesses that are incorporated will also benefit from the reduction in the corporate tax rate to 29 per cent applying for the 2012/13 income year. As only one-third of small businesses are incorporated, most will miss out on this initiative.
FBT and company provided cars
The Government has finally removed the tax incentive of rewarding drivers for driving more kilometres. The statutory formula method for valuing cars will now be streamlined by adopting one standard rate irrespective of kilometres driven. This change will be phased in, with rates as shown in table 2. Those who drive low kilometres will benefit while those who drive over 25,000 of mainly non-business kilometres will be the losers.
The operating cost method for valuing cars will still be available. Employees who travel high business kilometres for work purposes should consider this option as it should result in lower FBT amounts under the new rules. Unfortunately the operating cost method is the more time-consuming option administratively, which will increase compliance costs.
Figure 1 shows the spikes around the various kilometre thresholds under the old rules, which encouraged drivers to drive enough kilometres to take advantage of the lower tax rate. Who said that tax does not influence behaviour?
Employees who do not drive many kilometres may want to reconsider packaging vehicles as part of a salary sacrifice arrangement. Employees who will be worse off under the new rules may want to consider hanging onto their existing vehicles longer to continue to receive favourable treatment. If a vehicle is held for more than four years, there is a one-third reduction in the vehicle’s cost base, which will further reduce the FBT amount.
Little change in superannuation
We all breathed a sigh of relief when the budget contained some relief for excess contribution tax. While it’s not perfect, it does offer the majority some relief from the punitive excess contribution tax. Unfortunately it only applies to breaches of the concessional contribution cap. There is no relief for non-concessional breaches.
As they say, beggars can’t be choosers. A once-only breach of the concessional cap of less than $10,000 will not incur an additional 46.5 per cent penalty. The excess is returned and taxed at the taxpayer’s marginal tax rate. This new measure only applies prospectively from 2012 onwards so it will not assist in the case of retrospective breaches.
Avoiding the hard decisions
In summary, while the budget has some good initiatives, it shies away from the difficult policy choices needed to tackle the underlying structural problems that are eating away at the long-term sustainability of our federal finances.
