Federal Budget – What does it mean for the Accommodation Sector?
As happens every year, the eyes of the business world tuned in for one night in May to listen to the Treasurer; Scott Morrison, as he delivered his third Federal Budget in what is an election year.
Confirming many of the pre-budget leaks the main budget announcements came as no surprise with modest tax cuts and a range of measures to promote jobs and growth. The message promoted by the Government is that it is focused on bringing the budget back into surplus. Bolstered by increased revenue of $21.4 billion since Christmas from improved tax receipts from both Companies and Individuals the budget outcome looks more certain than ever before.
So what’s in it for the Accommodation Industry?
Income Tax Cuts
Never before seen the Government has laid down a seven year plan addressing personal tax rates. The first step in the plan is immediate tax cuts for middle and low income earners in the form of a non-refundable tax offset of up to $530.00 per year. The offset will be available for four years between 2018-19 and 2021-22, and will be given back to taxpayers after they lodge their tax returns.
The second step in the plan is to guard against income tax bracket creep by increasing the threshold of the 32.5% tax bracket from $87,000 to $90,000 from July 1 2018. From July 2022, the 32.5% income tax bracket will increase again from $90,000 to $120,000.
In the third step of the plan, the Government will remove the 37% income tax bracket in a bid to simplify the tax system. At the end of the seven year plan the vast majority of Australians will be paying tax at a rate of 32.5% on any income they earn between $41,000 and $200,000.
Although modest, the initial tax cuts provide a real tax saving for many Management Rights owners, and possibly more importantly improves the likelihood of the average taxpayer deciding they can afford their next holiday at your Resort.
Crackdown on overseas online Hotel bookings
In a change that will likely bring a smile to local accommodation booking service providers, the government has announced a plan to recoup $15 million by making offshore online booking providers calculate their GST turnover in the same way as local businesses.
This measure will come into effect from 1 July 2019 and apply to sales made on or after that date, as long as all the states and territories agree to the proposal.
Currently unlike GST-registered business in Australia, offshore sellers of Australian hotel accommodation are exempt from including sales of hotel accommodation in their GST turnover. This means they are often not required to register for and charge GST on their mark-up over the wholesale price of the accommodation. This exemption was introduced in 2005, when most offshore sales of Australian Hotel Rooms were to foreigners booking through offshore operators and the online booking market was small. Who could have imagined how this market has grown over the last thirteen years!
Removing the exemption will level the playing field by ensuring the same tax treatment of Australian hotel accommodation whether booked through a domestic or offshore Company.
Sales that occur before 1 July 2019 will not be subject to the measure even if the stay at the hotel occurs after that date.
Accommodation property operators should keep a close eye on the detail as legislation is formulated around this proposal. No Australian Accommodation provider could argue with a policy that seeks to clip the wings of the current offshore booking agent duopoly.
The $20,000 write-off will be extended again!
The Federal Government has extended the $20,000 instant asset write-off for small business entities for those with an aggregated turnover of less than $10 million. The extension applies from 1 July 2018 and runs for the 12 months ended 30 June 2019.
While the extension of the depreciation concession is welcomed, it is disappointing that after now extending this concession several times the government has not taken the opportunity to lock the concession in for future years.
The Government has committed $206.5 million over four years from 2018-19 for round three of the Building Better Regions Fund (BBRF), to support investment in community infrastructure and capacity building projects in regional areas. This includes $45.0 million to improve tourism-related infrastructure, supporting demand driven projects that ensure the benefits are multiplied across the tourism sector in the regions. The BBRF has two streams – the infrastructure projects stream (construction of new infrastructure, or the upgrade or extension of existing infrastructure) and the community investments stream (new or expanded local events, strategic regional plans, and leadership and capability strengthening activities)
In addition, the Federal Budget’s focus on new investment in roads and bridges is a welcome measure to address urban congestion. It was important for the Budget to support infrastructure projects that are ready to commence, so the productive benefits can take hold in the short to medium term. The government has offered up a $24.5 billion package, with several specific projects rated as a high priority by Infrastructure Australia. Each project will have a positive impact on productivity, and will help residents, motorists and businesses save time.
In addition the Government will allocate $535.8 million over five years from 2017-18 to protect the Great Barrier Reef from climate change and pollution.
In all, the Federal Budget produced mixed results for the accommodation sector but the net outcome should be considered to be positive for the Accommodation industry. Certainly the current Government appears intent on growing the economy by promoting employment and providing support to small business owners. We should see a boost in consumer and business confidence as a result of personal tax cuts and business incentives which is likely to lead to increased demand for both corporate and leisure room nights around the country.
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Holmans Chartered Accountants
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