So the yearly 'night of nights' for the tax community is now
behind us and it's time to pass on the Budget measures that most impact the
racing and breeding industry - some we suspect you may never have thought of!.
Tax Avoidance Task Force – High Wealth Individuals again the
target
The ATO announced a new 1,000 strong task force to focus on high
wealth individuals and multinationals. When considering this in light of the recent
data matching project the ATO announced, i.e. "Project Do It", a project
designed at establishing people who own expensive "lifestyle assets" such as
racehorses, people in the horse breeding and racing industry should be informed
of the new focus.
To refresh re "Project Do It", the ATO recently obtained over 100,000 records
from insurance providers in relation to the owners of lifestyle assets. These
assets included racehorses, boats and other high value assets. The appropriate
and timely disclosure of assets and associated income is important to avoid
compliance audits in this area.
Medium sized business get access to some Small Business
concessions
In an unexpected move, the government announced that the threshold
for access to some existing income tax concessions will be extended to
businesses with aggregate turnover up to $10 million, increased for businesses
with aggregated turnover up to $2 million previously. This change however does
not extend to the Small Business CGT concessions.
The good news for players in the Horse Breeding and Racing Industry is that
this gives larger businesses access to the following concessions
the prepayment rules to deduct things like service fees paid in advance;
the $20,000 depreciation write off for any depreciating assets worth up to
$20,000 and the simplified pooling of assets;
Cash basis of accounting for GST; and
Simplified trading stock rules.
There are other income tax concessions that small businesses have access to
that will also presumably be extended to medium sized businesses with
aggregated turnover under the new threshold.
Superannuation changes to impact Non-Commercial Loss Rules
Another change that at first instance seems harmless but may have a
wider impact on the industry is the balance cap of $1.6 million on accumulated
savings that can be transferred to tax-free amounts in the retirement phase of a
Self-Managed Superannuation Fund ('SMSF'). This change is slated to come into
effect from 1 July 2017.
In plain English, this rule means pensions paid in excess of this $1.6 million
cap will now be taxable and increase the likelihood for high wealth individuals
(with a SMSF paying them a pension), to earn at least $250,000 p.a . going forward.
Where this is the case, access to immediately claiming losses from a taxation horse breeding or racing activity will be cut off, unless the person seeks a Private Ruling from the ATO that demonstrates long-term viability for the business.
This is a time consuming, problematic
and costly process. Commercial horse breeders transitioning to retirement
should seek advice in relation to how this change will affect them.
Should clients or members of the general public wish to discuss any of these
developments please contact our office.
Corporate Rate Reduction
Many commercial horse industry players trade via companies.
The company tax rate will be progressively reduced to 25% over the next 10
years. In the 2016-17 tax year companies with annual aggregated turnover less
than $10 million will be reduced to 27.5%.
This 27.5% rate will apply to companies with larger aggregated turnover in
accordance with the below schedule:
Income Year |
Annual aggregated turnover threshold |
2017-18 |
$25 Million |
2018-19 |
$50 Million |
2019-20 |
$100 Million |
2020-21 |
$250 Million |
2021-22 |
$500 Million |
2022-23 |
$1 Billion |
2023-24 |
none |
The
rate will then continue to reduce from 2023-24 as follows:
Income Year |
Company Tax Rate |
2024-25 |
27% |
2025-26 |
26% |
2026-27 |
25% |
Franking credits will be paid at a rate in accordance with the tax paid by the company originally.
New company loss rules a win for the racing industry too
This rate reduction coupled with the recently announced proposed relaxing of company tax loss rules makes companies an increasingly more attractive tax vehicle to use for both investments and businesses.
The new proposed tax loss rules for companies will allow tax losses for 'predominantly similar businesses' to be deducted. Previously, where 50% or more of a company's shares changed hands only a virtually 'identical business' could access the company's losses, which made it very difficult for horse industry players with companies to legitimately transfer the company or use the losses in the company for other activities.
Prepared by:
BILL MAVROPOULOS CA
CARRAZZO CONSULTING CPAs
801 Glenferrie Road, Hawthorn, VIC, 3122
TEL: (03) 9982 1000
FAX: (03) 9329 8355
MOB: 0417 549 347
E-mail: bill@carrazzo.com.au or paul.carrazzo@carrazzo.com.au
Web Site: www.carrazzo.com.au