How the mining tax repeal will hit SMEs
The mining tax repeal only affects mining companies – right? Not right. A number of measures that were to be paid for from the proceeds of the mining tax directly affect SMEs. These include the instant asset write-off and depreciation on motor vehicles.
The mining tax is abolished with effect from 1 October 2014.
The government has announced that 30 September 2014 will be proclaimed as the commencement date for the measures associated with the (now repealed) mining tax. Those measures will have the following dates of effect for most taxpayers:
- Abolition of the company loss carry-back from 1 July 2013.
- Reduction of the instant asset write-off from 1 January 2014.
- Abolition of accelerated depreciation for motor vehicles from 1 January 2014.
Taxpayers with substituted accounting periods may have a different date of effect.
All of this requires a little further explanation.
The government said the above dates are consistent with the Exposure Draft to the mining tax repeal legislation, and with the dates announced in November 2013 at the time of the introduction of the first mining tax repeal bill to Parliament. The government further added that the tax measures can be reconsidered in the context of the government's review into taxation through the Tax White Paper, due sometime in 2015.
The government consulted with the ATO in relation to the administration of the measures and their dates of effect to ensure that assistance is provided to affected businesses.
Company loss carry-back provisions
The repeal of the company loss carry-back provisions applies from 1 July 2013 for most taxpayers. Companies who have claimed the offset and are now no longer eligible will be contacted by the ATO about their circumstances. The ATO said it will amend the affected assessments and taxpayers will not be subject to penalties and interest if payment is made within a reasonable time.
Small business instant asset write-off
The repeal of the provisions allowing small businesses asset write-off concessions apply from 1 January 2014 for most taxpayers [i.e. the write-off threshold falls from $6500 to $1000 from 1 January 2014]. From the 1 January 2014, only assets costing less than $1000 (acquired and installed ready for use after 31 December 2013) will be eligible for immediate write-off. Assets costing $1000 or more will need to be depreciated in the general small business pool. Assets costing less than $6500, acquired and installed ready for use by the small business between 1 July 2013 and 31 December 2013, will still be eligible to be immediately written-off.
Those taxpayers who have lodged their 2013-14 tax returns under the previous law should now seek amendments to reduce their depreciation claim. The ATO said it does not intend to apply penalties or the shortfall interest charge if taxpayers request to amend their assessments within a reasonable period of time.
Accelerated deduction for motor vehicles
From 1 January 2014, motor vehicles will only be immediately deductible if they cost less than $1000. Motor vehicles costing $1000 or more, acquired and available for use after 31 December 2013 will need to be depreciated in the general small business pool. Under previous legislation, small businesses could claim up to $5000 as an immediate deduction for motor vehicles costing $6500 or more that were acquired from the 2012-13 income year onwards.
Note that motor vehicles acquired and available for use between 1 July 2013 and 31 December 2013 will still be eligible for an immediate initial deduction of up to $5000. The ATO said no shortfall penalty will apply if taxpayers seek to amend their return within a reasonable time and the SIC will also be remitted to nil.
The ATO has advised the government that it will waive all penalties and interest in instances where taxpayers have chosen not to prepare their returns on the basis of the government's announcement of the measures, if they seek to have their income tax assessments amended in reasonable time.
The drawn-out saga of the repeal of the mining tax has not been helpful to SMEs. There has been uncertainty created in waiting for the final date of effect of the abolition of the important associated measures outlined above. That has now been done, but affected SMEs will need to carefully review any relevant deductions they have claimed to ascertain if amendments need to be made. The ATO has indicated it will offer SMEs all the help it can.
Small businesses can call the ATO for advice about the changes on 13 28 66.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.