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Let’s get straight to the point … this was a budget targeted at putting some fire in the belly of the entrepreneurial spirits. It was clearly targeted at start-ups, small businesses and the people behind them. Joe Hockey is clearly encouraging people to ‘have a go’ in business.
Not every business owner will benefit from the measures in the budget but it is clearly an economic stimulus package. The biggest ‘new’ news from budget night was the immediate tax deduction for assets costing $20,000 or less when purchased by small businesses. Nevertheless we would assume the government believes spending on such amounts will benefit the wider economy.
We have summarised below the bits in the budget relevant for businesses and the people behind them, broken down specifically for SME’s, Large Businesses, Individuals, Charities & Not-For Profits.
1. The tax rate for companies considered “small businesses” will reduce from 30% to 28.5% from 1 July 2015.
To qualify as a “small business the turnover of your company and related entities will need to be less than $2 million”. This is good news, however, you will need to leave the money in the company to see the long term benefit and avoid paying top-up tax of up to 19% (49% top tax rate less 30% franking credit) in your own name if you take the cash out of the company. If the cash is to stay in the company [for example to repay debt] this reduction in company tax rate will be beneficial.
[Generously the government has allowed franking credits to remain at 30%].
2.“Small businesses” will be able to claim an immediate deduction for assets costing up to $20,000 from 12 May 2015 to 30 June 2017.
This concession applies to normal business assets such as furniture as well as motor vehicles used in the business.
[This is an unexpected and generous concession for small businesses to encourage them to invest in long term assets that can normally only be claimed as depreciation over many years rather than up-front].
3. Individual taxpayers receiving business income in their own name or through a partnership or trust will also receive a 5% discount on their tax from 1 July 2015.
A maximum $1,000 tax offset will be available under this measure each year but once again this will only apply to “small businesses”.
[It would appear a small business operator could qualify for the 28.5% company tax cut as well as this new offset provided you have two businesses qualifying under both measures – of course total turnover must be less than $2 million].
4. New Start-ups will be able to deduct professional costs up-front rather than over five years from 1 July 2015.
This will allow those initial accountant and legal costs to be invested in the business and claimed up-front. You will also be able to claim structure costs such as formation of trusts and companies up-front rather than over five years.
5. The FBT exemption will be brought back for “small business” staff to be able to receive more than one portable electronic advice from their employer from 1 April 2016.
This measure relates to laptops, tablets, phones and other electronic gadgets expected to be carried by staff and used primarily in the business (50% or more).
6. “Small business” owners can change their legal structure without a capital gains tax liability from 1 July 2016.
The aim of this measure is to give small businesses more flexibility as they grow to change their structure without incurring significant costs. For example, there are existing CGT rollover reliefs to move from a sole trader to a company but not to a trust. This new measure will allow that further flexibility.
While on the face of it this measure is commendable there are already a wide variety of ways and means to restructure a business without incurring a capital gains tax liability. This is afforded through the existing CGT small business concessions widely known about in the business community as well as other rollovers available.
[As stamp duty still exists on business conveyances in Queensland and some other states, valuations will still be necessary as will the payment of stamp duty in those states].
7. Crowd funding rules will be introduced to allow new sources of capital for small to medium businesses.
Crowd funding is on the rise across the globe so it is good to see the government embracing this new form of capital.
[This is great news for businesses where another path to raising capital for growth will become available outside of the big 4 banks].
While these measures are aimed at very large businesses they have been targeted by the government due to their impact on the broader community and in some cases to level the playing field for Australian businesses.
1. Companies moving profits offshore will be targeted with new anti-avoidance laws from 1 January 2016 if they have global revenue of over $1 billion.
The target appears to be contrived arrangements that divert tax to other jurisdictions. How this operates or what will be considered contrived is not clear. However, it seems likely that recently publicised sales entities in Singapore for mining companies and the online businesses like google will be the target.
[Additional measures will introduce larger penalties for these large businesses that engage in tax avoidance and profit shifting to low tax countries as well as additional transfer pricing documentation requirements].
2. GST will be charged on digital products and services purchased into Australia from 1 July 2017.
With the growth in digital products into Australia, the government has decided to level the playing field for Australian operators who must charge GST. This measure was announced recently with the release of Netflix into the Australian market.
[The government has indicated goods imported by consumers costing less than $1,000 will still be exempt from GST].
1. The four different motor vehicle deduction methods will be reduced to only two methods being the “cents per kilometre” and “logbook” methods as of 1 July 2015.
Considering that only 2% of taxpayers ever used the “one-third of costs” method or “12 percent of value” method this is a welcomed simplification. This change will not affect salary sacrificed cars by employees who will be dealt with under the existing FBT rules.
[For those wanting to claim more than 5,000 kilometres, the logbook method will now be the only option where you want to claim a larger deduction for depreciation and running costs].
2. The zone rebate has been removed for fly-in-fly-out and drive-in-drive-out workers from 1 July 2015.
You will now only be able to claim a zone rebate where your usual residence is located in a zone.
[Many employees in the mining industry are bound to be unhappy about changing this long-standing concession – although this entire concession is long outdated].
1. Meal entertainment for not-for-profits will now be limited to $5,000 before it counts towards your $17,000 or $30,000 cap from 1 April 2016.
All benefits will now also be included as reportable fringe benefits on the PAYG summary meaning that various income tests will now also apply such as medicare surcharge. This change has been on the cards for some time and was never likely to last. The packaging of unlimited restaurant meals and other meal entertainment went far beyond the intentions of the concession.
[While this concession has now been reduced substantially it still remains the case that an employee can access the full $17,000 or $30,000 cap more than once provided they are employed at two different not-for-profits – it remains to be seen how long this concession lasts].
Of course everyone at businessDEPOT would love to help you with any further enquiries you may have on what the budget means for you and your business.
Feel free to contact any of our accounting specialists via phone on 07 3193 3000 or email, and connect with us on LinkedIn, Facebook and Twitter for all updated insights and value bombs to help you #MAKEITHAPPEN.
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