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The 2015 Federal Budget was targeted clearly at empowering small businesses to get out there and ‘have a go’. It was clearly targeted at encouraging small businesses to spend money and to use this stimulus to drive the economy as a whole [after all, small businesses buy items off bigger businesses and small business owners buy houses too].
Many businesses within the Real Estate industry fit this category of a small business [less than $2m turnover] and many real estate businesses, and the people behind them, will benefit from the budget announcements [provided they can get them passed of course].
The biggest ‘new’ news from the budget is an immediate tax deduction for amounts invested up to $20k per individual item by small businesses prior to 30 June 2017.
To save you from reading all the commentary on the budget [and getting all zen with tax], we have summarised for you below the Top 10 ‘bits’ of the budget relevant to real estate businesses [and the people behind them].
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].
8. 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.
[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].
9. ATO to take over regulation of foreign investment in real estate
Maybe I am just being cynical about this change but if the ATO is now regulating foreign investment in real estate, could they now have access to even more data for audit purposes?
[Who knows if this will result in increased compliance for foreign investment in real estate?]
10. No changes to the taxation of superannuation
If you are in succession or pension mode, it is good news to hear Treasurer Joe Hocker has no plans to change the taxation of superannuation.
[This does of course not mean changes may be come in the future as they are currently reviewing a number of reports that could effect how super is taxed].
Of course our real estate specialist team at businessDEPOT would love to help you with any further enquiries you may have on what the budget means for you and your real estate business.
Feel free to contact any of our specialists via phone on 07 3193 3000, email or connect with us on LinkedIn, Facebook and Twitter for all up to date insights and value bombs to help you #MAKEITHAPPEN.
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