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Cars and PAYG - drive change in FY11-12

When financial commentator Peter Switzer described the 2011 Federal Budget "as all about nothing", he had Australia's small business capital - the Gold Coast - in mind.

The Gillard Government proclaimed to make tax simpler for small business with new initiatives to encourage growth.
 
It was part of the plan to target SME's with FBT reforms and vehicle tax write off and a scrapping of the Entrepreneurs Tax Offset.
 
The new package includes a $5000 tax write-off for small business vehicles to be introduced from 2012 -13, with companies able to claim in the next FY.

The Government claims the move will result in a $350 million cash-flow benefit to entrepreneurs and will save the tax department $15 million compared with the $365 million Entrepreneurs Tax offset.
 

Under the vehicle scheme, a utility bought for $33, 960, will result in an additional $4250 deduction - an extra tax benefit of $1275.

The reform will apply to vehicle contacts established after May 10 2011. The statutory rate for travelling over 40,000 kilometres a year will increase from 10 cents this year to 13 cents in 2012 and 17 cents in 2013, before being standardised at 20 cents from 2014.
 

Small businesses will still use log books to chart the amount of distance travelled.

The Government says that the change will improve its underlying cash balance by $953.9 million.

The Pay As You Go tax system is also under reform with the Government to reduce income tax instalments paid under PAYG - a move which Swan claims will provide a $700 million cash-flow benefit from lower tax payments in 2011 -12 to small businesses.


Under the new arrangement, PAYG instalments for the coming year will be set at 4 per cent above a small business taxable income for the previous year - half the statutory rate. The benefit will last 12 months and the statutory rate will apply as normal in 2012 -13.


Saber Accountants Managing director Jenan Thorne says the consensus among the city's SME's is that direct support for small business from the government initiatives is low.
She says in light of minimal changes, strong tax processes and dynamic business planning should remain the priority for businesses.

In light of the Federal Budget announcements, it is apparent that small business must continue with a strong focus on tax planning to ensure that tax is minimised where possible. We cannot refute the fact that we are in a tough economic climate says Thorne.
 

"SMEs must continue to adapt and change as they have done over the past three years since the GFC"

She says business owners should be aware that the $5000 deduction on any car purchased after May this year will not be immediately deducted.
 

Obviously the benefits are not immediate with the introduction of this deduction in two years, but under these reforms there will also be an immediate tax write off of $5000 for capital purchases up from $1000 presently says Thorne.


Regarding plans to scrap the Entrepreneurs Tax Offset, she says the loss of this measure may be slightly offset by the Henry Tax Review's plan to reduce the company tax rate from 30 per cent to 29 per cent.
 

Thorne also says the reduction of Pay As You Go (PAYG) income tax installments for those using the GDP adjustment method could translate into a small cash -flow benefit.
"These benefits will be available to all small businesses, including sole traders, partnerships, businesses operating through trusts and companies," she says.

 

Author: Jenan Thorne. Article published in Gold Coast Business News