[Insert DD Month YYYY]
[Insert Client Name]
[Insert Client Position]
[Insert Company Name]
[Insert Client Address]
[Suburb State Post Code]
Dear [Insert Client Name]
Re:
Recent tax changes and tax reform
There have been a number of tax changes and proposed tax changes during the last 12 months and
many of these are particularly relevant to smaller businesses. A number of the changes apply from 1
July 2015 so may impact on year end planning or structures.
Executive Summary
We have outlined the following in this letter:
1. key business tax changes from the 2015/16 Federal Budget
2. other business tax changes or announcements
3. status of tax reform.
1. Key business tax changes in the 2015/16 Federal Budget
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Small business entities are eligible for an immediate write off for most depreciating assets
costing less than $20,000 for expenditure from 12 May 2015
The corporate tax rate will be reduced to 28.5% for small business entities effective from 1
July 2015
Companies will be permitted to frank dividends at 30% even though the corporate rate will
drop
Non corporate small business taxpayers will be entitled to a 5% tax discount up to a
maximum of $1,000 p.a. from 1 July 2015
Businesses will be entitled to an outright deduction for business start up costs ,such as
lawyer’s and accountant’s fees incurred from 1 July 2015
There is to be elective CGT rollover relief for change of structure such as from a sole trader to
a trust. No detail has yet been released on this measure.
2. Other business tax changes
Start up Rules for employee share plans
If these rules apply, an employee can benefit from the following:
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shares (but not options) can be issued at a discount of up to 15% and the discount is not
subject to tax
the cost base of the share for CGT purposes is taken as its market value on the issue date
(meaning the discount is never taxable)
if the shares are issued at a greater than 15% discount, the taxing point is deferred until sale
of the shares (and the discount is then taxed as part of the taxable gain on sale, not as
income).
In order to qualify the company must meet the definition of start up:
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the employer and any members of its corporate group must not be listed on an approved
stock or securities exchange at the end of its most recent year of income
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the employer and any members of its corporate group must be less than 10 years old
it must have an aggregated turnover not exceeding $50 million
it must be an Australia resident taxpayer.
Taxation of earn-outs
Draft legislation has been introduced in relation to taxation of earn outs arising on sale of a business
or business entity. For example, shares in a company may have been sold for an amount of $1 million
with an additional $500,000 being paid if the business met certain financial performance hurdles over
say, a two year period. In simple terms, for “eligible earn outs” arising from 23 April 2015, a “look
through” approach is adopted. Essentially, where additional consideration is received at a later point
in time, taxpayers are required to amend their earlier year return to add in the additional
consideration, rather than trying to value the earn out right and treating it as a separate asset.
In the example above, assuming the earn out conditions were met, the consideration for sale of the
shares would become $1.5 million rather than $1 million.
Only those arrangements classified as “look through earn out rights” are eligible for such treatment.
The conditions include:
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the asset must be an active asset
the holding entity of a share or interest in a trust must be a CGT concession stakeholder
payment of the earn out must be linked to the future economic performance of the asset or
business.
3. Status of Tax Reform
The Government issued a Tax Reform White Paper on 30 March 2015. The Paper raised a number of
questions and issues and the open for comment period closed on 1 June 2015. The timeframe and
process is that the Government will issue a Green Paper later in the year which will then lead to
consultation on key reform issues. Until then, any commentary in relation to critical issues such as
GST, taxation of trusts, change in tax rates and taxation of superannuation is merely speculation.
Please contact me should you wish to discuss any of the issues raised above
Yours faithfully
[Insert name of Partner]