GST not being charged on all imports
In May, we published a blog post about proposed new GST rules affecting overseas businesses exporting goods and services to Australia. Under the proposals, from 1 July, they would be required to charge and remit GST on goods and services with a value of less than $1,000. This, we said, had made Gerry Harvey rather happy.
In a recent partial backflip, the government has deferred the imposition of the ‘Netflix tax’ in relation to tangible goods such as electronics or clothing. Importantly, it will still apply to Netflix and other digital content services. Specifically: “it will be imposed on intangible supplies such as supplies of digital content, games and software – but will also extend to consultancy and professional services performed offshore for customers in Australia.” You can read more about it here.
Wealthy families not receiving “windfall” tax cut
You may have read in The Australian recently, that the ATO had signalled a tax cut for the wealthy via a ruling allowing family investment companies to claim back hundreds of millions of dollars in company tax. They called this a “windfall” for the wealthy.
In fact, the ruling to which the article referred is a draft ruling on the tax residency of companies incorporated overseas. In a footnote to that ruling, a reference is made to some old cases that suggest a company may be considered as “carrying on a business” even if it only holds passive investments.
Under recent changes, companies with turnover of less than $10 million, carrying on a business, had their company tax rate reduced for FY 2017 from 30% to 27.5%. This is part of the government’s agenda to gradually reach 25%. The draft ruling, which is not binding, did not state that passive investment companies can benefit from the reduced company tax rate of 27.5%. We understand that the ATO have yet to form an opinion on this matter.
Even if the lower tax rate will apply to passive investment companies, when dividends are paid they will only be franked at the lower tax rate. Further, shareholders will potentially pay tax on their dividends at the highest marginal rate in any case. These factors mean the tax benefits are likely to be minimal.
Far from a “windfall” for wealthy families everywhere.
Crowdfunding for proprietary companies
Draft legislation, as part of the FY 2018 budget papers, indicate that equity crowdfunding will be extended to proprietary companies. This essentially means that incorporated SMEs will be able to raise equity finance from private investors without having onerous offer documentation requirements e.g. prospectuses.
Several web platforms have been established in Australia enabling transactions like these to be easily promoted and facilitated entirely online. They are eagerly following legislative changes in this area, as are would-be early-stage venture investors.
A previous proposal had suggested that companies hoping to raise capital in this manner would need to be public (unlisted), which is highly unusual for the sorts of ventures that would be looking for this type of funding.
The latest proposals would extend equity crowdfunding to private companies and allow an unlimited number of shareholders. However, the companies will have certain new obligations, including: a minimum of 2 directors, financial reporting in accordance with accounting standards, audit requirements, restrictions on related party transactions and minimum shareholder rights to participate in exits. With our audit capability through Allworths Assurance and Advisory, we expect to support a number of early-stage ventures through this increasingly complicated process in the coming years.
Though we can’t all be on Shark Tank, it seems most of Australia’s 2 million plus small businesses will have a new source of potential finance in the near future.
Feel free to contact our team if you have any questions about the above issues.