How your business can take advantage of the 2015 Federal Budget

Small businesses are the clear winners in the 2015 Federal Budget. Here’s how to ensure you’re well-placed to take advantage of the new measures.

Thanks to Mark Latham, if you didn’t know already, you know now: the 2015 Federal Budget included many tax-breaks for small business owners.

So what were these breaks exactly? And what do they mean for you? Here’s a summary of the most pertinent points:

1. Reduction in company tax rate from 30% to 28.5%

Companies that meet the definition of a small business will receive a 1.5% reduction in the amount of tax they pay effective for the financial year ended 30 June 2016.

What you need to know

You will pay less tax!
Companies with PAYG instalments will benefit from their first payment after 1 July 2015.
The new rate only applies to companies carrying on a business. Companies that simply hold passive assets will remain taxed at 30%.

Things to consider

Whilst you should never make a decision to curb your businesses growth for the sake of paying less tax, there may be merit in giving some attention to your revenue position next year if you are close to the $2m threshold. The option to delay invoicing or the receipt of payments could allow you to sneak under the threshold and therefore receive the benefit of the reduced rate of tax.

2. Discount of 5% on tax payable by other business entities (not companies)

The government recognises that not all small businesses are companies and will deliver a 5% discount (capped at $1,000) on tax payable by individuals who derive small business income from unincorporated entities, such as sole traders, trusts and partnerships.

What you need to know

You will pay less tax!

Things to consider

Similar to what was mentioned above, it will be worthwhile paying attention to your revenue position if it is close to the $2m threshold. Your accountant should help you assess this during tax planning for 2016.
The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset. As such, small business operators will need to carefully assess whether to incorporate or not.

3. Immediate deduction for assets worth $20,000 or less (excluding GST)

This measure has received the majority of the Budget media buzz. Currently, small businesses can immediately deduct assets costing less than $1,000. Assets over this amount must be depreciated. This is a significant increase and will benefit small business by reducing their tax bill or increasing tax losses which can be offset against profits in future years.

What you need to know

The $20,000 threshold will apply to assets acquired and installed ready for use between 12 May 2015 and 30 June 2017. So you can purchase a new asset worth up to the threshold and receive the benefit this financial year.
From 1 July 2017, the threshold reverts back to the existing $1,000 amount.
Your general pool balance can be immediately deducted if the balance falls below $20,000 over the period (including existing pools).
The Government will also suspend the current “lock out” laws for the simplified depreciation rules, also known as asset pooling (these prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out), until 30 June 2017.

Things to consider

Don’t buy things you don’t need! – Beware businesses advertising the increased threshold as a means to justify buying things you don’t need. Spending to receive a tax deduction isn’t a wise decision. Would you pay $1 for every 30 cents you received? Unlikely, and this is effectively what you are doing if purchase items you don’t need just to get a tax deduction. First and foremost make the decision to purchase an asset on the basis that it’s either something you actually need and/or will derive more income for your business. The tax deduction should be seen as a secondary benefit.
Timing of planned asset purchases – If you were considering the purchase of a new car, piece of machinery or other important business asset then you may want to consider bringing forward that purchase (cash flow permitting) prior to 30 June 2015 in order to receive the deduction this financial year. At the very least make sure that you consider any planned asset purchases prior to 30 June 2017 when the threshold reverts back to $1,000.
If you are a business that uses the Uniform Capital Allowances regime to depreciate your assets but are currently eligible for the small business concessions you may wish to consider re-entering the simplified depreciation regime.

4. Immediate deduction for professional fees for new businesses

Currently fees, such as accounting and legal, relating to the set-up of a new business (also known as formation costs) have to be deducted over 5 years. From 1 July 2015 these fees can be fully deducted in the year they are incurred.

5. Capital Gains Tax (‘CGT’) Rollover Relief

A business that changes structures is potentially liable for CGT. Currently there are relief measures for small businesses who incorporate e.g. move from a trust or sole trader to a company. The new roll over relief measures will extend this relief to small business who change into other structures. The Government gives the example of a sole trader changing their business structure to a trust.

The relief allow a small business to restructure and defer any CGT that may be payable until the ultimate sale of the business in the future.

What you need to know

The measure will be available for businesses that change entity type from 1 July 2016.
There is further detail to come on the new measures.

Things to consider

The measure recognises that a small business may have chosen a structure when they started and now find that their structure is no longer suitable for them. As such you should take the opportunity to review your business structure whilst your business is under the $2m revenue threshold.

6. No FBT on work-related electronic devices

Currently businesses receive an FBT exemption for devices used primarily for work purposes, provided the devices perform substantially different functions. In today’s world of mobile phones and tablets which perform similar functions, this has caused confusion. As such the Government has removed this restriction.

What you need to know

The restriction will take effect from 1 April 2016.
All personal electronic devices used primarily for work purposes regardless of their function will be exempt from FBT.

7. Employee Share Schemes (‘ESS’) Changes

Currently when employees are granted shares or options they are liable to pay tax on the value immediately. This makes granting shares to employees prohibitive for most small businesses and start-ups. Under the proposed changes, eligible start-up companies will be able to grant their employees certain options or shares where the employee will not be subject to tax on grant, vesting or exercise. Instead, CGT will apply, generally when the shares are sold.

These changes will make employee share schemes a viable way for start-ups to attract talent during their early stages by granting equity to employees.

8. Crowd Source Equity Funding Update (‘CSEF’)

CSEF will allow start-ups to raise money in a similar fashion to public companies by making offers to the public or the ‘Crowd’ but with less onerous compliance requirements. The final makeup of the regime is expected to be known with the release of the legislation in August. The government has cemented its commitment to CSEF with over $7m in funding for ASIC to simplify reporting and disclosure requirements required for the regime.

Got any questions about the implications of the 2015 Federal Budget for your business? Ask below and Campbell will provide an answer if feasible.