Budget 2015 | Small Business Changes
Tax cuts for small business
From the 2015-16 financial year, the Government will reduce the company tax rate to 28.5% for companies with aggregated annual turnover less than $2 million. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30% rate on all their taxable income.
The current maximum franking credit rate for a distribution will remain unchanged at 30% for all companies, maintaining the existing arrangements for investors, such as self-funded retirees
Individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset.
Comment:
This lowering of the tax rate was an expected measure to encourage small business investment in difficult economic times. The Government hopes that the difference between the tax rates is great enough to benefit small business but also low enough to incentivise small businesses to grow. It is interesting that the Government has left the franking credit rate at 30% for all companies, allowing small business owners to maintain the higher level of tax advantages associated with franked dividends.
Capital gains tax roll-over relief for changes to entity structure
The Government will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a capital gains tax (CGT) liability at that point. This measure will be available for businesses that change entity type from the 2016-17 financial year.
CGT roll-over relief is currently available for individuals who incorporate but all other entity type changes have the potential to trigger a CGT liability. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established.
Changes to the fringe benefits tax system for work-related electronic devices
The Government will allow a fringe benefits tax (FBT) exemption from 1 April 2016 for small businesses with an aggregated annual turnover of less than $2 million that provide employees with more than one qualifying work-related portable electronic device, even where the items have substantially similar functions.
Currently, an FBT exemption can apply to more than one portable electronic device used primarily for work purposes, but only where the devices perform substantially different functions.
Removing the restriction that a tax exemption is only provided for one work-related portable electronic device of each type will remove confusion where there is a function overlap between different products (such as between a tablet and a laptop).
Immediate tax deduction for items valued less than $20,000
Small businesses with aggregate annual turnover of less than $2 million can immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000. This will apply for each asset acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The Government will also suspend the current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) until 30 June 2017.
From 1 July 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert back to existing arrangements.
Immediate deductibility for professional expenses
From the 2015-16 financial year, the Government will allow businesses to immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. Currently, some professional costs associated with a new business start-up are deducted over a five year period.
Accelerated depreciation of assets for primary producers
The Government will allow all primary producers to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills.
The Government will also allow primary producers to depreciate over three years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed.
These changes will be for income years commencing on or after 1 July 2016. Currently, the effective life for fences is up to 30 years, water facilities is three years and fodder storage assets is up to 50 years.
The Government will not proceed with the previously announced but unenacted measure to replace the current GST-free treatment for supplies of going concerns and farmland with a reverse charge mechanism.
Restart wage subsidy
From 1 July 2015, payments for the Restart Subsidy will be more accessible by allowing employers to receive the subsidy amount of $10,000 progressively over 12 months, rather than the current 24 months.
Since 1 July 2014, Restart provided support to employers who employ and retain eligible job seekers who are 50 years of age or older, and who have been unemployed and on income support for six months or more. Currently, an employer will receive up to $10,000 (GST inclusive) in assistance for a full-time employee over two years.
