Now that the 1 July 2008 income tax cuts are looking much more certain, it is time to start planning. By TERRY HAYES of Thomson Legal & Regulatory.
By Terry Hayes
With rising interest rates causing finance for small business to become more expensive, and the tax office continuing its drive to collect outstanding small business tax debts, SMEs could use some good news!
This morning the Rudd Government introduced into Parliament a bill reflecting its election tax cut promises, extending the tax cuts that had already been legislated by the Howard government last year.
The bill will increase the $30,000 threshold to $34,000, with effect from 1 July 2008, and extend tax cuts in 2009 and 2010.
Some of the changes that will happen on 1 July 2008 are already law. They were legislated last year in the Tax Laws Amendment (Personal Income Tax Reduction) Act 2007.
The major changes that will come into effect from 1 July are that the 30% tax rate will apply up to $80,000 (instead of the current $75,000) and the 40% rate will apply up to $180,000 (instead of the current $150,000). See table below.
|
Proposed tax rates applicable from 1 July 2008 |
|
|
Taxable income ($) |
Tax payable ($) |
|
0 – 6000 |
Nil |
|
6001 – 34,000 |
Nil + 15% of excess over 6000 |
|
34,001 – 80,000 |
4,200 + 30% of excess over 34,000 |
|
80,001 – 180,000 |
18,600 + 40% of excess over 80,000 |
|
180,001+ |
58,600 + 45% of excess over 180,000 |
What this means is that now it is a good time to start thinking about planning for those cuts.
Simple things, like deferring income until after 1 July, and bringing forward tax deductions before that date, where possible, will save tax. In basic terms, tax deductions are worth more before 1 July 2008 than after. And deferring income until after 1 July means it will be taxed at a lower rate.
Other good news for small and medium businesses came with the Rudd Government’s announcement of its plans to ensure its departments and agencies improve the timeliness of their payments to their small business suppliers.
Supplying governments can be a very lucrative opportunity for SMEs, but chasing outstanding debts is a notoriously problematic area for small businesses, so anything that can reduce the problem will be welcomed.
Payment terms can be a strong negotiation point where a significant deal is in play, but for SMEs, the longer the time to receive what they’re owed, the more difficult their cash flow position.
The Government’s aim is to have the departments pay their small business suppliers within 30 days. This will be a boost to SME cashflows and will no doubt help them meet their other costs, such as tax bills when they fall due.
On top of this announcement is another boost for SMEs. That is, the Government also plans to introduce, in association with the payment time limits to small business, a system whereby small businesses can charge interest on overdue payments from government departments.
Sounds like a very good idea, although the details of the scheme have not yet been made known. Of course, SMEs should consider that any interest they collect from late government payers will form part of their assessable income for tax purposes; a small price to pay perhaps for the ability to secure prompt payment from government – and to improve their cashflows.
This proposed change might be seen as a useful start to the Government’s plans to cut red tape for small business. The issue in all of this of course is just when it will be implemented. It’s not known what timeline the Government has in mind – but the sooner the better.
So, it’s been a promising start to 2008. Let’s hope that promise continues to produce good results for SMEs.
Terry Hayes is the senior tax writer at Thomson Legal & Regulatory , a leading Australian provider of tax, accounting and legal information solutions.
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