As a holiday park owner looking to navigate through the unique challenges ahead, the last thing you need is to stress over your tax affairs.
There are particular areas of tax that holiday parks should review to ensure they are taking up the opportunities they potentially have available, that can help maximise critical cashflow while also meeting tax obligations. These are generally tax issues that have always been at play, but often not properly considered.
Looking at these will help benefit your business whether that’s saving on tax costs or having peace of mind that you’re on the right track.
There has been some new tax legislation that is helpful in this area.
Reinstatement of tax depreciation on commercial buildings
Tax deductible depreciation has been reinstated on commercial and industrial (but not residential) buildings from the 2020/21 tax year. The tax depreciation rate for commercial buildings is 1.5% straight line or 2% diminishing value. Building owners are also able to adjust their provisional tax payments immediately in anticipation of the additional deductions that would become available.
Notwithstanding the above, it should also be considered whether other depreciable assets are separate from the commercial buildings and have a higher depreciation rate. Examples could include heaters, dishwashers or building fit-out.
Land continues to not be depreciable property so does not give rise to a depreciation deduction. Therefore, it is necessary to make some apportionment between the cost of land and any buildings. This is subject to any improvements made to the land, which may give rise to a depreciation deduction – such as a swimming pool.
- Low-value asset threshold
The low-value asset threshold has increased, from $500 to $5,000 from 17 March 2020 until 16 March 2021. This allows businesses to deduct the full cost of these assets in the year purchased.
Not having to spread the cost over the life of the asset allows an upfront deduction, benefiting cashflow. However, the $5,000 threshold is only a temporary increase. For assets purchased from 17 March 2021, the threshold will be permanently increased from $500 to $1,000.
Repair and maintenance costs
Holiday park owners could understandably be hesitant to allocate cash towards repair projects during uncertain times. However, they may also be surprised to find that some significant repairs and maintenance expenditure are tax deductible.
The principles for deductibility of repairs and maintenance costs involves identifying the relevant asset being repaired and then assessing the nature and extent of work done to the asset. Generally, any work that improves an asset’s original state will be non-deductible capital expenditure.
However, where an asset has been repaired using equivalent materials, which has not changed the asset’s original character, the expenditure incurred may be deductible. This can encompass work such as painting, repapering, rewiring and plumbing repairs.
We can help you assess beforehand what would be capital or deductible expenditure before you commit valuable cash to any repair projects, as the result is often fact specific.
Understanding the land tax rules
The land tax rules can be very complex. We can help you navigate through the raft of applicable rules, particularly if you are looking to acquire, dispose of, develop, or subdivide land. These transactions can provide opportunities, but there are also risks.
Careful consideration must also be given to the specific residential land rules. For example, the mixed-use asset rules and bright-line rules will likely be applicable for holiday parks where property is used for both residential and business purposes (e.g. manager’s apartments).
Succession planning and exit strategies
Long-standing holiday park businesses may benefit greatly from reviewing their ownership structure, to minimise any unnecessary risk and maximise wealth. Changes to ownership structure can create significant opportunities, but there can also be considerable tax exposure. We can work with you to make well-informed decisions.
Whether you are looking to retire or exit from your business now or in the long-term, it is never too late to consider your succession plan.
Many business owners transition their exit over time, often bringing a new owner or partner into the business before their own departure, to “show them the ropes”. As always, it is best to canvass the tax position before executing any plans or strategies. This includes considering:
- Shareholder continuity rules to carry forward any tax losses and/or imputation credits before introducing a new shareholder. It is easy to unintentionally breach the continuity thresholds and lose valuable losses and credits;
- How new entrants introduce value and how exiting owners extract it;
- Refocusing on the most profitable parts of your business or letting go of the unprofitable ones, to ensure that your business is sale-ready when the time comes.
Our team of tax experts at BDO can help you review your business’ tax position and maximise critical cashflow while meeting your tax obligations.
There are several tax opportunities we can help you with to benefit your business now and into the future.
We can help owners understand the latest tax changes and instil practical plans to ensure that the business’ ownership is structured in the most tax efficient way for both now and the long-term.
Contact your local BDO adviser for more information.