Our national economy has been feeling the stagnating effects of a mining boom that is winding down and a relatively flat global economy for the past twelve months. To that end the Federal Government has been left with the unenviable job of trying to reign in budget deficits whilst also keeping the economy ticking along at a rate good enough to prevent rising unemployment. The Reserve Bank has done its part by reducing interest rates to record lows, but with little room left for rates to drop, the Government’s fiscal policy needed to be at least partly stimulatory.
Enter some major announcements for small business in the Federal Budget 2015.
1. Company tax rate changes
The headline announcement for this year’s Federal Budget 2015 was the drop in the company tax rate from 30% to 28.5% for small businesses with annual turnover not exceeding $2 million. Some 800,000 incorporated small businesses will benefit from this drop.
The Treasurer’s hope is that the tax savings will be reinvested in small businesses through expenditure on capital equipment to generate growth in the economy. The rate drop will take effect for tax returns for the year ending 30 June 2016.
2. Small business tax discount
The 70% of small businesses that are not companies may be forgiven for thinking they’ve been forgotten but they haven’t. All non-incorporated small business will receive a 5% discount on their income tax liability, up to a capped limit of $1,000.00.
Again this won’t impact your small business until you lodge your 30 June 2016 income tax return.
3. Instant asset write offs
The second key measure to restore small business confidence is a re-introduction of the instant asset write off previously used by Kevin Rudd to stimulate the economy out of the depths of the GFC. Under Rudd the instant asset write-off was capped at $6,500. The Treasurer’s announcement surprised everyone when he capped the instant asset write off at $20,000. The effect of this measure is immediate, unlike the cut to the small business tax rates, and is likely to do more to stimulate the local economy in the short-term.
Our concern is that small business owners misunderstand this measure and think they are getting $20,000 off their taxes; this is most definitely NOT the case. All this measure does is bring forward several years of depreciation, allowing you to fully depreciate an asset in the year it is bought and installed as ready for use. It will definitely see small businesses with spare cash looking at what assets they can acquire now to benefit their businesses growth prospects for the future. This measure is set to expire on 30 June 2017, let’s hope that it can be continued past that date, even if the $20,000 limit gets reduced to a more sustainable amount.
4. Start-up expenses
Any small business owner will know that the costs of just getting to the stage of being able to make a sale can be quite high. Yet these expenses were never deductible and instead needed to be written off over five years. The Government has fixed this and will allow small businesses to claim professional start-up expenses immediately, which is when they really need it.
5. Capital Gains Tax (CGT) Rollover relief
As small businesses and their owners cycle through life, circumstances change and often dictate a change in legal structure for the business to achieve its goals.
Unfortunately capital gains tax laws have always presented a stumbling block to making this happen. This budget removes this impediment and will allow small businesses to change from one legal structure to another without attracting CGT. So we may well see a raft of partnerships and trusts looking to switch into a company structure to take advantage of the reduced company tax rates, but only time will tell on this point.
6. Fringe Benefits Tax changes
This may be seen as a minor change but the removal of FBT on buying multiple work-related electronic devices for staff will be seen as a boost for those in small businesses that are heavily reliant on the use of smartphones, tablets, laptops and even smart watches.
7. Non-resident individual tax rates
Many small businesses such as cafes and retailers rely on itinerant workers, especially non-resident holiday makers, to staff their small businesses. The removal of the tax-free threshold for non-resident workers may place extra pressure on such businesses to either pay them more or worse still to pay them in cash. Let’s hope that small businesses aren’t tempted to head down this path as they would be the one to face the ATO imposed penalties.
There are plenty more measures we could cover and the devil is always in the detail but these measures will take up plenty of time as small business owners across the country decide on the future direction of their small businesses. As always, I highly recommend that soloists seek out specialist advice about their own businesses circumstances before acting based on information they hear in the media or around the BBQ on the weekend.