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.

Facebook announces search engine

Facebook is urging businesses to increase their proficiency of the social networking site as it announces a new search engine, the Graph Search, which allows users to search their friends, pages and connections for data.

In order to take full advantage of this new update, businesses should make sure their Facebook page is up to date, has active content and contains useful information.

The move is being touted as one that could shake up Google’s ownership of the web search space- potentially completely changing the landscape for business advertising.

As well as being able to search friends and pages connected to them, users can also search through the entire Facebook ecosystem, gathering information from all pages and profiles to bring the results.

Australian economy moved slowly into 2013

The latest pair of indicators show that the economy moved slowly into the new year, with building approvals falling by 2 per cent for the third month in a row. The weakness of the building and other sectors showed itself in a slowing of job ads , which fell by one per cent on the internet and in newspapers. Although a standalone marginal figure, it was the tenth fall in a row, marking the lowest point of jobs advertised in three years. These economic figures point to a general consensus among some leading economists that the job unemployment rate will rise to 5.5 per cent from 5.4 per cent.

This is a still a relatively low unemployment figure but along with the high Australian dollar points to the economy making a slow start to 2013.

Submissions for 2013 tax reforms

The Tax Institute has put forward a number of suggestions to the Federal Government in its 2013 budget submission paper. Among the suggestions are reforms in state tax, calls for a new small business entity and tax deductions for childcare.

One of the key proposals is to make childcare costs fully tax deductible, as opposed to the current 30% rebate. The proposed scheme would encourage mothers to return to the workplace.

The Tax Institute also put forward an idea for a new class of small businesses, which would take the best structures of all small businesses, such as a company, or trust, and create a new classification known as a ‘small business entity’.

There were also suggestions to address “the low level and inflexibility of contributions caps” in regards to Superannuation, especially as media reports continue to suggest the Government will be targeting super funds for revenue.

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.