Repealing the Mining Tax

Repealing the Mining Tax

As a result of negotiations with Clive Palmer’s Palmer United Party (PUP), the government has delivered on its promise to repeal the Minerals Resource Rent Tax (the mining tax). 

Effect on Superannuation

As part of the deal to repeal the mining tax, the planned increases to the superannuation guarantee towards 12 per cent will be significantly affected.  Under the new arrangement, the existing superannuation guarantee rate of 9.5% will not be increased until after the 2020/2021 financial year.  The superannuation guarantee will then increase at a half a percentage point every year starting at the commencement of the 2021/2022 financial year until it hits 12 percent (the commencement of the 2025/2026 financial year).  The table below compares the superannuation guarantee rate before and after the repeal of the mining tax.   

As the table shows, the repeal of the mining tax will result in employers avoiding a steady increase of compulsory employer contributions for 7 years.   Industry Super Australia estimates that for an average income earner aged 25, the delay in the superannuation guarantee will cost them around $100,000 over their working life ($36,000 in today’s dollars).  Although the increases to the superannuation guarantee will be put on hold, the Government will keep the low income super contribution and schoolkids’ bonus until 31 December 2016.  The low income super contribution gives up to $500 a year to help those earnings $37,000 or less and the schoolkids’ bonus is a $410 boost to family tax payments for primary school students, and $820 for families with children at high school.

Effect on Small Business

The two million or so small businesses in Australia will also be heavily impacted by the agreement entered into by the government and PUP.  The implications for small business are:

• abolition of the company loss carry-back;
• reduction of the instant asset write off; and
• abolition of accelerated depreciation for motor vehicles.

The repeal of the loss carry-back provisions applies from 1 July 2013.  Companies who claimed the offset and are no longer eligible will be contacted by the ATO about their circumstances.  The ATO has said it will amend the affected assessments and taxpayers will not be subject to penalties and interest if payment is made within a reasonable time.  With regard to the small business instant asset write-off, the threshold will fall from $6,500 to $1,000 and will retroactively apply from 1 January 2014.  Therefore, only assets costing less than $1,000 will be eligible for immediate write-off.  Assets costing more than $1,000 will need to be depreciated in the general small business pool.   From 1 January 2014, motor vehicles will only be immediately deductible if they cost less than $1,000.  Under previous legislation, small business could claim up to $5,000 as an immediate deduction for motor vehicles costing $6,500 or more that were acquired from the 2012/13 financial year onwards. 

Our Comments

Delaying the scheduled increase of compulsory employer contributions will have a negative impact on those with inadequate retirement funds or those who do not plan for retirement.  The change is likely to result in additional pressure on the age pension system over the long-term.  In the short term the increase in disposable income will benefit the economy.  For small businesses, the silver lining is a reduced superannuation expense (for now), and the ATO’s flexibility in waiving penalties and interest.