Tax season can be a stressful time for many people especially these year where the Government has dropped low and middle income tax offset (LMITO). Therefore, if you were expecting a large refund to cover some of the cost of living increases you may be in for a surprise as the LMITO accounted for up to $1080 for individuals earning between $48,000 and $90,000. Without this offset, many Australians will see a reduction in their tax refund.
INFLATION
Another factor that could impact your tax refund is inflation. With inflation still very high, the value of your refund may not go as far as it did in previous years. According to recent reports, taxpayers who had their refunds processed got refunds that were on average 9.3% less than last year.
WHAT CAN YOU DO?
Whilst there’s not much you can do with regards to the changes to the LMITO and Inflation, you can still take steps to maximise you Refund by claiming all the available deductions that you’re entitled to.
Deduction expenses that relate to earning your income, such as work-related expenses or charitable donations. Keep track of all your receipts and enter them into personal accounting software such as Xero or MYOB. You can also make contributions to superannuation which are taxed at a lower rate than your regular income.
Finally, consider using a registered tax agent. Tax agents are professionals who are trained in preparing and lodging tax returns and can provide valuable adivce on how to maximise your Tax Refund often offsetting their costs.
“Investors, venture capital funds and innovative companies in all industries will benefit from the measures introduced by the recent Federal Budget aimed at luring wealthy investors with globally competitive tax incentives”
What are the tax incentives?
Tax incentive for early stage investors:
This will give concessional tax treatment to investors to promote investment in innovative, high-growth potential start-up companies.
It includes a 20% non-refundable carry forward tax offset on investments in qualifying companies, capped at $200,000 per investor per year;
And a 10 year exemption on capital gains tax, provided investments are held for 12 months or more.
New arrangements for venture capital limited partnerships
This will deliver changes to the tax treatment of early stage venture capital limited partnerships (ESVCLP) to attract more investment into venture capital.
Investors will receive a 10% cent non-refundable carry forward tax offset on capital invested through an ESVCLP.
The maximum fund size for new and existing ESVCLPs will be increased to $200 million with a number of reforms made to the income tax treatment of venture capital more generally.
Who is eligible?
The tax incentives will be available for investments in companies that:
undertake an eligible business (scope to be determined)
that were incorporated during the last three income years
aren’t listed on any stock exchange
have expenditure and income of less than $1 million and $200,000 in the previous income year respectively.
The scheme is based on the successful UK Seed Enterprise Investment Scheme which raised over AUD$500 million in startup investment for almost 2,900 companies in its first two years.
In general, wealthy clients who want to diversify their portfolios with high-risk high-reward investments but wouldn’t ordinarily take the plunge in very early stage companies. The new incentives were “attractive enough” to get them over the line.
How it will work in practice?
Jessica is the founder of a startup business called PaySmart Pty Ltd that is developing a software application to automate bill payments. She is looking to raise $200,000 in equity finance to continue developing of the software.
Alex is an experienced early stage (angel) investor and believes that PaySmart has excellent growth potential. He invests $200,000 and claims a 20% non-refundable tax offset, reducing his income tax payable by $40,000.
In addition to contributing capital, Alex uses his business skills to help PaySmart grow. He sells his shares for $400,000 four years later. As Alex has held the investment in PaySmart for the minimum three year period and less than 10 years, the full capital gain of $200,000 is exempt from capital gains tax.
New laws have passed that allow small businesses to claim an immediate deduction for assets they start to use – or have installed ready for use – provided each item costs less than $20,000. This will temporarily replace the previous instant asset write-off threshold of $1,000.
If you maintain a general small business pool, this can be immediately written-off if the balance is less than $20,000.
Assets that cost $20,000 or more (which can’t be immediately deducted under other provisions) are deducted over time using the general small business pool. Under the pooling mechanism a deduction for 15 per cent of the cost is allowed in the first income year with a diminishing value rate of 30 per cent deduction on the opening pool balance allowed for each income year thereafter.
This measure starts 7.30pm (AEST) 12 May 2015 and will end on 30 June 2017.
Come and talk to us on how to tax effectively purchase and make investments in your small business.
