By Andrew Hayes, Director, Westlawn business Services 13 May 2015
Last night, the Federal Treasurer, Joe Hockey, handed down his second Federal Budget. In general, this budget is aimed at supporting small business and growing jobs ($5.5 billion including $5 billion of tax relief), supporting families ($4.4 billion funding boost), ensuring fairness of tax and benefits, national security and progressing budget repair in a measured way.
The main Budget announcements affecting small business include:
The tax rate for companies with an aggregated annual turnover of less than $2 million will be reduced by 1.5% to (ie from 30% to 28.5%) from the 2015/16 income year.
A 5% tax discount for individual taxpayers with business income from an unincorporated business with an aggregated annual turnover of less than $2 million will also be introduced from the 2015/16 income year.
The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000.
Start-ups will be able to claim an immediate deduction for professional expenses associated with starting a business from the 2015/16 income year.
Further changes will be made to the taxation of employee share schemes.
Capital gains tax relief will be available to small businesses for a CGT liability arising from the alteration of their legal structure from the 2016/17 income year.
Primary producers will be able to claim accelerated depreciation for water facilities, fodder storage and fencing from 1 July 2016.
The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.
Tax rate cut to 28.5%
The Government announced, with effect from the 2015–2016 income year (ie from 1 July 2015), a 1.5% cut in the company tax rate applying to small businesses (turnover less than $2 million), reducing the tax rate to 28.5%.
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.
Tax discount for unincorporated small businesses
With effect from 1 July 2015 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, and will be capped at $1,000 per individual for each income year.
Small business asset accelerated depreciation write-off
Small businesses would be able to immediately write off assets they start to use or install ready for use, where the asset costs less than $20,000. This will apply for assets 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 Government will also suspend the current “lock out” laws for the simplified depreciation rules until 30 June 2017.
From 1 July 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert to existing arrangements.
Immediate deductibility for professional expenses re start-ups
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.
The measure will be available to businesses from the 2015–2016 income year.
CGT rollover relief for change to entity structure
The Government has confirmed that it will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a CGT liability at that point.
The 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, for example, a sole trader changing its business structure to a trust. The measure will be available from the 2016–2017 income year.
No FBT on work-related electronic devices
From 1 April 2016, (ie the start of the 2016–2017 FBT year), the Government will allow an FBT exemption for small businesses that provide employees with more than one qualifying work-related portable electronic device, even where the items have substantially similar functions.
Further Employee Share Scheme changes
Significant changes to the employee share schemes (ESS) rules were announced in October 2014. Additional changes announced in the Budget will:
Exclude eligible venture capital investments from the aggregated turnover test and grouping rules (for the start-up concession);
Provide the CGT discount to employee share scheme interests that are subject to the start-up concession, where options are converted into shares and the resulting shares are sold within 12 months of exercise; and
Allow the Commissioner to exercise a discretion in relation to the minimum three-year holding period where there are circumstances outside the employee’s control that make it impossible for them to meet this criterion.
These changes will take effect from 1 July 2015.
Under a $300 million drought relief package, from 1 July 2016, primary producers will be able to fully deduct capital expenditure on fencing and water facilities, in the year the costs are incurred. They will also be able to deduct capital expenses related to fodder storage over three years.
“Netflix tax” to start 1 July 2017
The Government has announced that it will impose GST on offshore intangible supplies to Australian consumers with effect from 1 July 2017. The measure has been cited in the media as the “Netflix” tax. The Government released draft legislation which contains the details of the changes.
Disclaimer Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.