Reporting of Subcontractors

In the 2011-12 federal budget, the government announced a new tax compliance measure to require certain businesses to report annually to the ATO on payments they make to contractors in the building and construction industry. The system aims to improve compliance with taxation obligations by providing us with payment information that will allow us to undertake industry-wide data matching and targeted audits of those who do not voluntarily report their income.

Building and construction businesses will have received information from the ATO asking them to report details of amounts paid to contractors. The ATO have advised that they capture details of amounts paid to contractors (whether sham or legitimate) and use the Australian business number to match these with our records to check whether contractors are correctly reporting their contract income.

Depreciation

Up until June 2012 business assets costing less than $1,000 could be written off in the year of purchase. However from 1 July 2012, small business entities will be able to write-off business assets costing less than $6,500 per asset.

From 1 July 2012, small business entities will be able to write-off the first $5,000 of a new or used motor vehicle.

These means that if a vehicle was purchased for $40,000, the claim in the first year can be $5,000 plus depreciation on the balance of $35,000 which is the amount added to the depreciation schedule or pool. So for a vehicle depreciated for the full year, the first year claim for the tax year 2012/13 is potentially $13,750 compared to $10,000 (depreciation on the full amount) for the 2011/2012 year.

The brought forward depreciable amount is not an additional tax incentive or tax offset as experienced with the recent 50% tax break on assets. The ATO states this is designed to replace the Entreprenurs Tax Offset however the brought forward depreciation is nothing more than a timing difference, and will create a situation where taxpayers should be prepared to pay tax on profit on disposal of their motor vehicles. The Entrepreneurs Tax offset was a 25% reduction in tax payable for small business.

This brought forward deduction only applies to road based vehicles. It does not apply to offroad vehicles.

Carry Back Losses for Companies

Companies will be allowed to carry back tax losses in 2012/13 and offset them against tax paid in 2011/12 and get a refund of tax previously paid. From 2013/14, tax losses can be carried back and offset against tax paid up to two years earlier.

Only tax losses of up to $1m can be carried back each year and the loss carry back is only available to companies and entities taxed like companies. The concession only applies to revenue losses and is limited to a company’s franking account balance.