There's a new government, it's a new year and there's a new set of tax issues business owners need to be mindful of. Here's what's in store for the coming year:
1. A crackdown on tax-evading multinationals.
Governments around the world, including Australia's, are looking to improve their bottom line by tightening up the regulations that have allowed major corporations to pay negligible amounts of tax by profit shifting (aka transfer pricing). In July 2013, the Organisation for Economic Co-operation and Development issued a 15-point action plan1 to go after transfer pricing, and you can expect national governments to both collaborate on international agreements and introduce legislation in their own countries to dramatically reduce the scope for profit shifting. In Australia, the present government is likely to continue with its predecessor's move to take a close look at debt-funding schemes and ensure they are not being used as vehicles for transfer pricing.
2. A tightening up of the rules on trusts.
While SMEs aren't likely to be affected by the Australian Tax Office (ATO) going after profit shifting, many will be impacted by the crackdown on the use of trusts. In mid-2013, the ATO issued a Taxpayer Alert TA 2013/1 that warned business owners to stop misusing trusts by converting income into capital and streaming it to low taxed beneficiaries.2 If you're making use of one or more trusts, expect the taxman to scrutinise them closely this year.
3. Lower taxes
The ATO might be determined to crack down on the tax issues mentioned above but the new government has proclaimed it is committed to creating a business-friendly environment and is in the process of axing various taxes introduced by its predecessor. As has been well publicised, it is getting rid of the carbon and mining resource rent taxes, which should lower costs for all businesses and particularly ones that use a lot of power. Thanks to the incoming government's decision not to proceed with removing the FBT statutory formula method from the tax cycle, running company cars will be less of a headache in that log books won't have to be kept detailing private and business use. Also, while it won't be happening in 2014, the Coalition has also pledged to reduce the company tax rate by 1.5 per cent to 28.5 per cent on July 1, 2015.
At the time of writing, there are 95 tax changes the Coalition has announced it intends to introduce, but which are still unlegislated. So, when it comes to tax issues it is very much a matter of 'watch this space'. One of the tax issues many small businesses would want to keep a close eye on is the loss carry-back measure, introduced in the dying days of the last government. The Coalition plans to repeal it, which will result in around 110,000 Australian businesses no longer being able to 'carry back' their losses to offset past profits and receive a tax refund.
1 Action Plan on Base Erosion and Profit Shifting, OECD Publishing, OECD (2013)
2 Taxpayer Alert TA 2013/1, Australian Taxation Office, August 2013 http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20131/NAT/ATO/00001
This article represents the views of the author only and not those of American Express.
Nigel is a freelance journalist and web content provider. Over the past 15 years he has worked for many of Australia's major print media companies and written for a wide range of newspapers, magazines, trade publications and websites. Nigel most enjoys writing about entrepreneurship, popular culture, politics, social trends and small business.