Budget 2013: Medical expense tax offset to be phased out

The Government intends to phase out the out-of-pocket medical expense tax offset. Currently, a 20% tax offset can be claimed for eligible out-of-pocket medical expenses in excess of $2,060 per annum. For general medical expenses, only taxpayers who claim the offset for the 2013 income year will be eligible to claim in future years.

Individuals who have expenses relating to disability aids, attendant care or aged care will continue to qualify for an offset up to 2019.

Budget 2013: Self-education expenses capped

The Government announced in last night’s Budget its intention to limit the allowable deduction for self-education expenses by individual taxpayers to $2,000 per annum from 1 July 2014.

The limit will apply to all self-education expenses such as tuition, books, courses, computer equipment as well as travel and accommodation relating to seminars, courses etc.  However, the proposal is far reaching and will impact on individuals wanting to improve their professional qualifications. Small businesses can continue to help staff with additional training and skills by offering any courses or tuition as a fringe benefit, which will be exempt from any caps.

Changes to thin capitalisation rules expected in Budget

With the Federal Budget being released next week, many are speculating that the Government will be cracking down on business concessions with thin capitalisation rules being targeted. The rules which affect large, multinational companies may have unintended consequences for small businesses. For example, if a big business is forced to downsize it could hit smaller suppliers in a domino effect, possibly resulting in closures and creating struggling businesses.  There were expectations by the business community that any changes to thin capitalisation would be offset with a company tax cut; however, this has been ruled out by the Treasurer in light of deficit concerns.

Furthermore, the proposition to change thin capitalisation rules hint at an increase in the capital gains tax which would have far reaching consequences for the entire business community.

Inflation remains under control

Official inflation figures released for the March quarter show consumer prices for goods and services remain under control.

The inflation figure from the Bureau of Statistics came in at 0.4 per cent, with the annual rate of consumer price increases at 2.5 per cent, slightly up from the 2.2 per cent level in the previous December quarter. The Consumer Price Index (CPI) was within the Reserve Bank’s forecast of between 2-3 per cent and was below market expectations, leaving some to wonder whether this will give scope for further interest rate cuts.

The figures released showed a 7.6 per cent rise in the average price of pharmaceutical products, a 6.5 per cent increase in tertiary education costs, 3.7 per cent rise in the price of tobacco and a 1.2% increase in the price of fuel.

However, the cost of household goods and services decreased 1.3 per cent, with furniture and textiles falling to 6.8 and 6.7 per cent respectively. Clothing and footwear was also down 3.9 per cent compared to the previous quarter in December.

As a result of the low inflation figures, the Australian dollar is poised to remain around the US $1.05 through to mid next year.

RBA may take measures to deal with high dollar

The Reserve Bank has warned it may have to cut interest rates in order to ‘counterbalance the pressures’ of the strong Australian dollar according to a senior official at the RBA.

However, the RBA shed doubt on whether it would intervene in a ‘somewhat’ overvalued dollar by selling the currency, and would instead look at other responses. The central bank also warned that cutting interest rates too far could also create problems for the economy- forcing up the prices of assets and generating excess credit expansion.

Guy Debelle the RBA’s assistant governor noted that the RBA’s interest rate cuts had less of an impact on mortgage rates over the years, due to higher banking costs such as competitive pressures in the deposit market.

Increase in Australian business fraud

Australian businesses have lost $373 million dollars due to major fraud in the past 2 years, a three-fold increase in the past 15 years, yet are lagging behind addressing fraudulent behaviour as a serious issue.

There has also been an 82% increase in individual cases of fraud exceeding $1 million, with the finance sector hit the worst, according to an Australia wide survey on fraud conducted by KPMG.

Despite evidence of its continuing problem, only 15% saw fraud as a key risk in their business.

Those most likely to commit fraud tend to have been with the company for a long time, with 91% having a known history of fraud and 82% earning close to $100,000.

The survey also addressed the time it takes fraud to be detected, with an average of 665 days passing before an incident is reported or identified by a business.

The most common fraud methods, according to the survey, included false invoicing, theft of cash and fraudulent tendering. But technology is also playing a bigger part in fraud cases as hackers become more adept at cyber attacking company networks.

Fuel tax credit rate

Changes made to the Fuel Tax Credit system (FTC) on 1 July have to potential to significantly impact FTC entitlements for many SMEs.

Businesses that have a fleet of more than one vehicle will need to familiarise themselves with the changes to avoid paying too much tax.

The biggest change is that fuel used in off-road activities, such as forklifts will become entitled to the full credit rate.  Before 1 July such vehicles only qualified for a half credit rate.

The other major change involves the taxation of gaseous fuels (LNG, LPG and CNG).  These fuels that are supplied for use in non-transport activities were previously not subjected to tax.  The carbon tax now applies to these fuels.  They will now only receive a partial exemption from tax on gaseous fuels.

Users of non-transport gaseous fuels may be able to recover some of the carbon tax placed on the fuel if their business is classified within an industry or use that is exempt from the clean energy measures.

The following table summarises the impact of the changes for the fuel tax credit update.

Super can to improve cashflow for SMEs

Experienced SME owners can reduce their outgoing costs by restructuring their wage programs to include the Transition to Retirement Pension.

The Income Tax Act allows for eligible SME owners to reduce wages and leave extra cashflow in the business through a mechanism called the Transition to Retirement Pension. This enables a portion of income to be earned from super,with considerable tax benefits.

SME owners over 55 can receive a highly tax advantaged pension from their super fund.  Once over 60, the pension becomes completely tax-free. This means that eligible owners can earn a portion of their income through their super fund while still working.  One benefit will be the reduction of wage bills to the SME, without compromising their take home income. One of the major benefit of SME owners placing themselves on some form of pension in a super fund is that the income from the assets that support a pension becomes tax-free in the super fund it iself.

For example, if a pension is supported by assets of $200,000 and the fund’s income on those assets is, say, $10,000, normally the tax on that income is $1,500 i.e.15 percent.  By simply receiving the minimum pension amount allowable SME owners can save themselves $1,500 tax within the super fund.

Financial planning for the festive season

In order to avoid the post festive credit card blues, planning and creating a budget well in advance will mean less debt stress in the New Year.

A few key things to remember:

1. Try making it an all-cash Christmas. It is surprising what a difference a few $20 or $50 notes tucked away here and there can make when it comes to buying Christmas presents.
2. Look through credit card statements to see how much is left to repay. While keeping this in mind, create a spending budget which also includes the potential interest, in order to be better prepared for the repayments.
3. Implement a few tried and tested money saving tips such as doing a secret Santa with a cap on the amount spent, and asking those coming to the Christmas party to bring in a plate of food.

It will also help to squeeze in a few extra repayments to the credit card bill, mortgage or loan before Christmas, so that there will be less to pay off in the New Year, even if the Christmas budget goes off track.

Attract customers with Christmas marketing tips

1. Offer an exact delivery date. This may appear difficult, but with some planning and organisation businesses can guarantee customers an all important delivery date- key to securing pre-Christmas sales.
2. Word emails well: According to the survey, the words “Christmas/New Year” and “sale” had the highest email opening rate, followed by “% off” and “Christmas/New Years”.
3. Consider gift idea campaigns. Not everyone will have the time leading up to Christmas to choose from a full catalogue. It may be a good idea to package and suggest a few key items that will allow customers to cross people off their Christmas wish list.

Implementing a few key strategies can work wonders in increasing Christmas sales and generating business interest in the all important festive season.