No more tax loss carry-back and simpler small business depreciation

With the scrapping of the mining tax, the loss carry-back and small business simplified depreciation measures were also abolished.

What happened?

Recently the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014 that repeals the mining tax, passed the Senate after certain amendments from the PUP Senators and Senator Muir.

This Bill also repeals the company tax loss carry-back measures (from the start of the 2013-2014 income tax year) and the simpler small business depreciation measures (from 1 January 2014) while freezing the rate of compulsory superannuation at 9.5% until 30 June 2021.

The scramble is now on to work out what this practically means for taxpayers.

What does this mean for you?

Did you claim the loss carry-back in the 2014 income tax year or the $6,500 instant asset write-off for assets that were only first used / installed ready for use on or after 1 January 2014?

Once the Bill receives Royal Assent, the consequences should be as follows:

  •  If a company claimed the loss carry-back in the 2013-2014 income tax year, the return will be amended by the ATO (i.e. it will result in an increase in the company‚Äôs tax liability) but no tax shortfall penalty will apply and no interest will be levied on the shortfall.
  • If a small business with an aggregated turnover of less than $2 million instantly wrote off depreciating assets costing less than $6,500 in the 2013-2014 income tax year, tax returns will have to be amended if the asset was first used / installed ready for use in the business on or after 1 January 2014.

Likewise, from 1 January 2014, the special motor vehicle depreciation rules (i.e. deduct the first $5,000 of the cost of a motor vehicle plus 15% of any remaining cost) will no longer be available and motor vehicles will be subject to the same rules as other depreciating assets (e.g. the diminishing value method or prime cost method for working out the decline in an asset's value).

How can KHT help you?

The changes will create complications for many taxpayers and the amendment of many tax returns seems likely. It is important that accountants and advisors understand the amendments.

Please contact your KHT Adviser if you would like to discuss any of the issues mentioned in more detail or if you would like us to perform a financial health check of your affairs.