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Remember the changes announced in the Federal Budget in May? The beginning of the new financial year means that many of these measures have now commenced. While you’re probably across many of the changes – such as increases to minimum wage and the changes to parenting payments – you may not be as familiar with some of the changes relating to taxation.

It’s now vital that you understand these changes and make sure you’re compliant with them. The key changes include:

Employment termination payments (ETP)

An ETP is a lump sum payment you may make to an employee once they cease working for you. The payment can include amounts for rostered days off; amounts in lieu of notice; a gratuity or ‘golden handshake’; an employee’s invalidity payment; or certain payments after the death of an employee.

Last financial year, ETPs were taxed concessionally regardless of the recipient’s other income. Now, tax concessions are only available to the part of an ETP that takes an individual’s total annual taxable income (including the ETP) to no more than $180,000. Amounts above this level will be taxed at marginal rates.

The result is that ETPs up to the cap are taxed at a maximum rate of 15 per cent for those over the preservation age (the age at which superannuation can be accessed) and 30 per cent for those under the preservation age (plus Medicare levy). There are however some exemptions: ETPs relating to genuine redundancy, invalidity, compensation due to an employment-related dispute and death will remain subject to their existing arrangements.

Employers need to make sure they understand this new arrangement properly as it affects their PAYG Withholding obligations.

Company loss carry-back

Previously, losses made by companies were ‘carried-forward’; meaning that any losses made could be offset against income earned the following year.

Under the new regime, a company is now allowed to carry-back tax losses, which means it will be entitled to a refund of tax previously paid, when losses are incurred in a subsequent financial year. A one-year loss carry-back will apply this financial year, so tax losses of up to $1 million incurred this year can be carried-back and offset against tax paid in the last financial year. In future financial years, tax losses can be carried-back and offset against tax paid up to two years earlier.

This measure will apply to a company’s revenue losses only and will be limited to its franking account balance.

Bad debts between related entities

A bad-debt is an amount written off by a business and reclassified as an expense; once it’s determined that the debt owed cannot be collected. Under the amended legislation, deductions from bad debt write-offs occurring between related parties are no longer allowed. This measure also ensures that the gain to the debtor will not be taxed.  This limits the availability of bad debt deductions.

There are changes to a number of other areas relevant for you and your business, including personal income tax rates, living away from home allowance and superannuation, so it’s worth making sure you’re across these also. A full summary of the changes can be viewed at www.budget.gov.au

The information contained within this article is of a general nature only and does not take into account your individual objectives, financial situation or needs. No direct or implicit recommendations are given and this should not be used as a substitute for specific professional advice. Reading this article does not establish any kind of advisor-client relationship. You should always consult a financial adviser for advice specific to your financial situation. Perpetual disclaims any liabilities whatsoever from your decisions based or influenced by this article. Any reference to readers’ actual circumstances is entirely coincidental.

Chris Balalovski

Chris Balalovski

Chris is responsible for formulating technical and taxation advice for Perpetual’s clients. Chris has over 25 years’ experience in legal, tax and commercial advice. He also has specialist expertise in Australian superannuation, including DIY super funds and estate planning. Chris is a Fellow of the Taxation Institute of Australia.

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