Paul Carrazzo is the instantly recognisable thoroughbred industry taxation expert.
Paul released a
"quick guide" as to
how Budget night 2015 impacted upon our industry.
To save the hassle of reading through all of the published measures and analysis, Paul provided a snapshot as to
what tax and other measures most affect the breeding and racing industry.
This data is set out as follows:
* Accelerated depreciation for primary producers
Thoroughbred breeders are categorized as "primary producers” for tax purposes.
Crucial farm infrastructure such as fences and water facilities are now subject to special write-off rules from on or after 1 July 2016.
This Budget will allow primary producers to:
Obtain an immediate 100% tax deduction for capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills; and
Depreciate all capital expenditure on fodder storage assets such as silos and tanks used to store and other animal feed over three years .
* Accelerated depreciation for "small business”
For reference, a "small business” for tax purposes has aggregated annual turnover of less than $2 million dollars.
From Budget night, a small business can obtain an immediate 100% tax deduction for assets they acquire that cost less than $20,000 (previously $1,000).
This generous concessions only applies to assets acquired and installed ready for use by 30 June 2017.
N.B. This concession only relates to depreciable plant and not the acquisition of stock (unless, in the rare instance, you have a "stand-alone” horse racing business (preferably ATO approved) with no associated breeding).
These new rules do not apply to horticultural plant or software.
* GST-free treatment of farmland
Good news – the government will not proceed with the previously announced but not enacted measure to replace the current GST-free treatment for the supplies of farmland and going concerns with a reverse charge mechanism. This measure was set aside when it became apparent that the measure would have resulted in adverse consequences for the farming industry.
* Tax cuts for "small business” companies and sole traders
From 1 July 2015, the government will deliver a tax cut to small businesses
* Reduction in company tax rates
The company tax rate will be reduced to 28.5% (i.e. a reduction of 1.5%).
* 5% discount on tax payable for sole traders
Individual persons with a small business will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received by a sole trader. (i.e. an unincorporated small business entity).
The discount will be capped at $1,000 per individual and will be delivered via a tax offset.
* Immediate deduction for professional expenses on commencing a new business
There are many new horse businesses starting and this is a worthwhile measure.
From 1 July 2015, the government will allow businesses to claim an immediate write-off for a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.
Currently these "formation expenses” are only deductible over a 5 year period.
* Claiming car expenses – modernising the existing expense claim methods
From 1 July 2015, the government will modernize the methods for claiming work-related expenses for an individual (or a partnership which includes at least one individual partner), as follows:
The scarcely used ’12% of original value method’ and the ‘1/3rd of actual expenses method’ will be removed.
The ‘cents per kilometer method’ is used by many racing industry players and will be modernised by replacing the three current (cents per kilometre) rates based on engine size, with one rate set at 66 cents per kilometre (in respect of all cars).
The existing ‘log book method’ remains as is.
* More scrutiny and greater transparency for agricultural investments
The Government is also delivering on its commitment to increase scrutiny and transparency around foreign investment in agriculture.
From 1 March 2015, the screening threshold for agricultural land was lowered to $15 million(applying to total agricultural land investment by an investor) — down from $252 million — while the definition of agricultural land will be changed to better reflect common understanding.
A new $55 million screening threshold (based on the value of investment) will apply from 1 December 2015 to investments in agribusiness.
The Government expects that the additional scrutiny of agricultural investments will provide confidence to the community that investments are not contrary to our national interest.
* CGT relief for small business restructures
Small businesses will be able to change their legal structure without attracting CGT liability at that point. Currently CGT ‘roll-over’ relief is only available for individuals who become companies, but other entity type changes have the potential to trigger CGT liability.
This measure will assist small businesses to change to a more suitable legal structure as the business becomes more established. For instance, many breeders convert from individuals to trusts for reasons of asset protection and greater tax efficiency.
In the weeks and months ahead Paul will expand on the above measures as greater details from the Government come to hand.