Federal Tax Reform
We left you in December with a New Year’s wish list in the tax space that highlighted the Top 5 areas that we think will shape the tax landscape in the 2025 calendar year.
Of those five areas, the impact of the upcoming Federal Election is the one that has jumped out of the blocks first.
The continued debate about the proposed Division 296 tax on member super balances over $3 million is bringing that proposal into serious doubt, at least in so far as it would apply to unrealized capital gains within superannuation funds. In fact, some commentators are even pronouncing that the entire Div 296 tax is already dead!
We suspect that until Parliament returns in February, and probably until the date the Federal Election is called, Div 296 will still have a pulse and then the current Government will start to outline their Election platform and if it is indeed “dead”, the news of its passing will be delivered.
The Opposition fired an early Tax Reform shot with respect to its proposed $20,000 tax deduction for SME’s for meals and entertainment (excluding alcohol) for staff and clients. Not only would the expenditure be deductible, but it would also be exempt from FBT.
The policy rationale is to support the hospitality sector, which has certainly struggled since the COVID period (and arguably for much longer). The proposal is for an initial two-year deduction period, followed by a review.
Little details have been provided at this stage, but they will need to be provided well before the election for industry to determine whether this is a measure that will assist SME’s or just add another level of complication and administration to an already patched up tax system.
- Our initial thoughts and questions are as follows: Why only a two-year period? Reform of any description needs to be longer term or dare we say, permanent.
- What entertainment is included and what is not? Is it only Food and drink excluding alcohol, if there is alcohol, do we just simply exclude the cost of the alcohol or does that exclude the meal as well?
- Does it include food and non-alcoholic drinks at other venues such as stadiums, golf courses, cinemas, etc given only cafes, pubs and restaurants were highlighted.
- If it is not just Food and Drink, is it all entertainment for FBT purposes? That includes tickets, events, recreation (golf, tennis etc), club or gym memberships, holidays and tours and if so, will there be any limitations to the types of activities?
- What records will be required?
No doubt many of these matters will be fleshed out when the formal Election phase gets underway, but let’s hope that tax related measures are plentiful during the Federal Election as we are sure it will not be lost on SME’s that a two-year, $20,000 p.a. tax deduction (worth $5,000 in tax savings for SME companies), is a “wafer thin” handout!
As always, we will keep you informed as the year progresses on any tax related Election proposals and indeed the rest of the 2025 Top 5, through our monthly Tax Flashes and Quarterly Tax Bulletins.
In the meantime, if you need to discuss any tax related matter, please call Ross, Mimi, Linken, Chris or Sean on 9481 8448.