Get up to speed on tax changes for your business

Business owners didn’t have many reasons to get excited about this year’s Federal Budget but it did include a couple of notable changes and confirmation of previously-announced measures. Peter Bembrick from HLB Mann Judd gave Wealth Professional the following overview

1.            Company tax rates

The proposed cut to company tax, including the small business tax cut, has been abandoned. The company rate will stay at 30% for all companies for the foreseeable future. Some of the tax planning companies were doing around the proposed changes, including in relation to their franking account balances, will no longer be relevant.

2.            Carry-back rules

New rules will allow companies to carry back up to $1m of tax losses to offset tax payable in an earlier year. The introduction of this measure is good news for businesses and follows the lead of many of our trading partners such as the UK and the US but there are some limitations.

For 2012-13, the carry back is available only for a 12 month period. It applies only to companies that make a taxable profit in 2011-12 and a tax loss in 2012-13. From 2013-14, the carry-back period increases to two years.

No limits apply on the size of the companies that can use this concession. It is likely that the tax refund will be limited to the company’s available franking account balance. For example, if a company made profits in 2011-12 and paid tax, but has since paid franked dividends to use the resulting franking credits, it will be unable to carry back tax losses from 2012-13.

3.            Bad debt deductions

From 8 May businesses have no longer been able to claim a bad-debt deduction on a written-off debt with a related party.

In these situations the debtor will not be taxed on any gain that they may make on the debt written off, but the creditor will not be able to claim a bad debt deduction. We will need to wait for the legislation to see how related party is defined in this situation but it is reasonable to expect that it will be defined quite broadly.

Published 13 June 2012 in Wealth Professional.