Labor’s tax plans – what lies ahead?

The future taxation landscape has so far only been painted with a broad brush, but already the view is different. What can SMEs expect? By TERRY HAYES of Thomson Legal & Regulatory.

By Terry Hayes

Labor’s tax reforms are only known in a broad sense.
For SMEs, the devil may be in the detail.

Well that’s another federal election done and dusted! So, where to now? It’s timely to look at some of the tax policy announcements that Labor made so SMEs can be aware of what lies ahead in a taxation sense.

It should be noted however that much of the detail of what Labor is proposing is yet to be seen, so all we have is relatively broad policy announcements to work with.

The most prominent announcement is Labor’s tax cuts plan.

Labor’s proposed personal tax rates and thresholds for resident individuals (excluding the 1.5% Medicare levy) under the Labor Government are summarised in the following table.

Well that’s another federal election done and dusted! So, where to now? It’s timely to look at some of the tax policy announcements that Labor made so SMEs can be aware of what lies ahead in a taxation sense.

It should be noted however that much of the detail of what Labor is proposing is yet to be seen, so all we have is relatively broad policy announcements to work with.

The most prominent announcement is Labor’s tax cuts plan.

Labor’s proposed personal tax rates and thresholds for resident individuals (excluding the 1.5% Medicare levy) under the Labor Government are summarised in the following table.

Note that the rates to apply from 1 July 2008 were legislated earlier this year following the 2007 federal budget, and Labor has agreed to keep those cuts. The rates and thresholds for 2009 and 2010 still need to be legislated.

Because of Labor’s proposed increases in the low income tax offset (that is, tax rebate), the effective tax-free threshold will increase from the current $11,000 to $14,000 from 1 July 2008, to $15,000 with effect from 1 July 2009 and to $16,000 from 1 July 2010.

For SMEs paying fringe benefits to their employees, the rate of FBT will remain at 46.5% at least until 2010. 

Labor’s “BAS Easy” option

Another significant reform proposed by Labor is to simplify the regulation affecting business, including what it calls a “BAS Easy” option for GST reporting by small businesses. Anything to simplify GST regulation and reporting would be welcome by all SMEs.

Key points of this proposal include:

• Who qualifies? Businesses with an annual turnover of up to $2 million would be eligible to use BAS Easy.
• Choice of method: Small businesses choosing BAS Easy could opt for either of two methods: the business norms method or the snapshot method. BAS Easy would be optional, and businesses could still choose to complete the BAS as now.
• Business norms method: It is proposed that the tax office issue a business norm for each category of business. A small business operating in that industry category simply applies the business norm to sales or to purchases or both. The tax office already provides simplified accounting methods (SAMs) for small food retailers.
  Labor proposes to extend the business norms method so it could apply to mixed businesses with sales of both GST-payable and GST-exempt items, such as businesses selling GST-exempt items such as basic food, most typical medical services.
  Under the business norms method of BAS Easy, it is proposed that start-up businesses could apply to the tax office for a business norm, effective from the first day of operations. They would then use that ratio for the first three months of operations, renewable at their discretion for up to three more, three-monthly periods (a total of 12 months).
  At the end of any tax period within the first 12 months, they could choose to switch over to the present BAS system or to the snapshot method of BAS Easy (see below).
• Under the snapshot method: Businesses would take two snapshots a year, each of four weeks, of their GST sales and input tax credits. They would then average the two ratios and apply the resulting ratio of input tax credits to GST for all other periods. The two snapshots taken could be used for up to three years. They would be reviewable by the tax office, but any changes arising from a review would apply prospectively only.
  A snapshot, once approved by the tax office, could not be varied by the tax office for previous tax periods. If the nature of the business changed significantly, such that the snapshots were no longer representative, the business operator would be required to notify the tax office and two new snapshots would be taken.
• No annual reconciliation: Under BAS Easy, the small business would only be required to apply an agreed ratio to GST sales. No annual reconciliation is required.
• ATO audits: Under BAS Easy, Labor says the tax office could audit actual sales and total purchases as submitted by the taxpayer, but only if there were grounds for believing the taxpayer was under-reporting GST sales or over-reporting purchases. The tax office could reserve the right to vary the business norms or request a new snapshot from a business for future tax periods but not for past periods.
  Labor says the rules for businesses opting into and out of the ratio method would resemble those of the existing SAMs. In effect, the tax office could only audit in cases of suspected fraud on the part of the taxpayer in under-reporting GST sales or over-reporting purchases. Any variations to business norms or snapshots could only be prospective.

Just how quickly Labor will move to legislate BAS Easy is unclear at this stage.

A superannuation clearing house

Labor has also proposed the establishment of an optional superannuation clearing house for all businesses that want to use it. Currently, under choice-of-superannuation legislation, businesses are required to make payments into numerous superannuation funds.

Under Labor’s policy, businesses would make payments into one central clearing house at which point their legal responsibility would be discharged. Labor says it will retain choice-of-fund, but allow businesses the option to make payments into the clearing house.

The clearing house facility would be contracted to the private sector, which would handle the form-filling, checking and distribution of contributions to funds. Labor says that small businesses with less than 20 employees would be offered this service free-of-charge and larger businesses would pay “a small transaction fee” for the service.

Terry Hayes is the senior tax writer at Thomson Legal & Regulatory , a leading Australian provider of tax, accounting and legal information solutions.

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