Tax time and the stimulus package transcript

By Fiona Boyd |

This post is a transcript of the video interview Tax time and the stimulus package.

Fiona Boyd: My guest today is Phil Grant, managing partner at Nexia ASR. Hello, Phil.

Phil Grant: Hi, Fiona.

Fiona: Look, there have been a lot of reviews – or, there have been some major reviews that have an impact, should have an impact on the accounting area and business in general in recent times, as well as the budget, and I thought maybe you could give us a bit of a wrap-up about those today. Firstly, we had all that economic stimulus last year – are there any hidden issues in there for business now that tax time is coming round again?

Phil: The biggest thing that came out of that stimulus package really for business, I mean to the extent that more money was spent, hopefully that’s been reflected in the clients’ bottom line, not sure if that’s really the case or not – some yes, some no. Obviously the accelerated depreciation write-offs for certain assets, there were various different cut-off dates but essentially 31 December last year was the cut-off date, so it’s important that, in compiling information prior to doing your tax returns for the June 2010 financial year, is that we don’t forget that. Because, for small businesses with a turnover of less than two million dollars, the ability to have a 50 per cent write-off for eligible assets, so that’s a straight 50 per cent deduction in addition to ordinary depreciation that’s able to be claimed on those assets. So…

Fiona: That keeps money in the company in that financial year, right?

Phil: Well, it just becomes an additional tax deduction, so therefore there’ll be less tax to pay, so that obviously conserves some cash flow in that less money has to get paid out to the tax man. Other than that, look, I don’t think there’s a huge amount out there. In the more recent time, we had the Henry Tax Review, we’ve had the Federal Budget, and we had the Cooper Review, which was another review to do with superannuation. I think it’s fair to say the Henry Tax Review was a non-event. There were a number of recommendations made by Ken Henry in respect of that, of which I think the government took up three.

Fiona: Oh dear. Poor Ken Henry…

Phil: It was an absolute waste of time. Obviously there’s a political environment we’re dealing with there… and the only thing which really, I mean they’re tinkering with the edges there. It’s not – it really was a non-event. And that’s a good thing and a bad thing. The good thing is, less change is probably a good thing as there’s less to concern ourselves with.

Fiona: In what way is it bad?

Phil: Well, you know, the bad thing: if there’s change there it’s always a problem. But there’s always the opportunity for the government to do something which could benefit business and that clearly didn’t happen. Ah, they said they were going to give some small… that the company tax rate was going to go from 30 to 28. Really? Big deal, truthfully. It doesn’t really have much of an impact, and there was some write-off there for equipment, up to five thousand dollars I think it was. And there was some, for individual tax returns, five hundred dollar write-off… But, really…

Fiona: Small biccies.

Phil: For businesses who are really the drivers in this economy, who are going to help us recover and move forward – not much of an impact, in my view. There are a few things – the Cooper Review was quite positive. The Cooper Review reviewed superannuation and, without going into detail, they’ve really reinforced the self-managed superannuation funds environment, which we’ve always advocated as being a good environment to help build wealth. So that was a big tick. They’ve obviously come out and said that commission-based plans are out, and I think everybody knew that was the case. Our financial services business started some 12 months ago when we knew that was not the model we wanted to pursue, and so we were free-for-service business, and that’s certainly where the industry is going. That’s a big positive.

Fiona: And Eureka Report have been lobbying since you started to get rid of those commissions.

Phil: Dreadful, just dreadful. So that’s changed, and that’s having an impact on that profession, because a lot of businesses were driven around that. But it’s not transparent. Fee-for-service is more transparent which is really what we’re after. There’s always stuff going on in the tax area. One in particular is in relation to a ruling which came out in relation to a section of the tax act called Division 7a, which is loans from companies to shareholders of those companies’ associates, and caught up in that is also distributions to companies, a very technical area, but suffice to say, which has changed the tax office’s stance on their positioning of those distributions, which will have an impact. There is no doubt there will be an impact on that for business who utilise that type of structuring. I think a lot of people are just trying to get their heads around that. But I think it’s fair to say that it’s an adverse impact.

Fiona: How are those distributions different to retained earnings?

Phil: Well, in a trust structure, you don’t have retained earnings. So trusts have the choice of either distributing the income or retaining it. Retaining it is usually at a tax rate of 46.5 per cent.

Fiona: Okay! This is why you distribute.

Phil: So we distribute out to an environment which is more tax-effective, but it’s obviously a distribution at the discretion of the trustees and they have to be distributions that make sense, and often a corporate beneficiary is being used to access a 30 per cent tax rate. But that landscape is changing. So, everybody who is using those structures needs to talk to their financial advisor or accountant about what that means for them.

Fiona: Okay Phil, thank you for your time today.

Phil: Pleasure.

Fiona Boyd talks regularly to Phil Grant, Managing Partner at Nexia ASR about financial matters, accounting and the entrepreneur.

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