Last night saw the release of the 2015/2016 Federal Budget. Fair to say it was a bit of a tame affair compared to the year before where a lot of the measures were very unpopular and as such were not able to be brought into action. The good news that did come from last night was that there were a lot of measures in there aimed at small business.
Benefits for Small Business
It should be noted that most of the measures targeted at the business sector were either directed at the big end of town or small business with very little for those in-between. We will focus on the small business end of things which for the purposes of most government measures is generally defined as a business with turnover of under $2 million.
Previously announced, but what was the government’s headline feature, was a cut to the company tax rate from 30% to 28.5% for small business. To be honest, this is not something that I consider particularly exciting, mainly because most small businesses aren’t operating through a company – they are either operating through a partnership, trust or as a sole trader. As such there was going to be very few businesses that would benefit from this. Even those that did there was going to be a significant proportion that would be paying out most of their profits to shareholders where they would be taxed at the shareholders marginal rate anyway.
Fortunately however, the government recognised this and they have also bought in another measure that will apply to all unincorporated entities – which is anyone that operates as a sole trader, through a partnership or a trust. Essentially this measure aims to cut the tax on the business income by 5% up to a maximum saving of $1,000. We are still waiting on full details for this measure but it is expected that the tax offset will be claimed in each individual’s personal tax return.
Immediate Write-Off of Low Value Assets
For a long time now small business has had the ability to claim an immediate deduction for assets purchased below a certain level. What has varied is the amount that has been able to be claimed. The government announced that this would increase from 7.30pm on the 12th of May 2015 until the 30th June 2017 to $20,000. This is a huge bonus as we start to look at tax planning in the lead up to the end of the financial year. With interest rates as low as they are this represents a real opportunity for small business to accelerate their deductions and cut their tax bills.
Fringe Benefits Tax
Under the fringe benefits tax provisions, previously the tax office has limited the number of portable electronic devices to one per FBT year for each staff member. That has been removed for small business, so that now means that each small business can buy each employee, multiple laptops, tablets, phones, etc. where they are used for business purposes without incurring any fringe benefits tax.
Capital Gains Tax
The government also announced they’re planning to introduce a capital gains tax roll-over to allow small business to re-structure their affairs through different legal structures without having the cost of capital gains tax applying. Fair to say that the devil will be in the detail and the only guidance so far is that the business must have the same owners. As such it won’t be of assistance to partnerships when they re-structure to omit or remove a partner, but generally speaking this should be a win in enabling taxpayers to restructure their affairs to the most appropriate structure.
Car Expense Claims
Currently we have 4 rates in which individuals can use to deduct their car expenses. These are being consolidated to just two. It might sound on face value to be a negative but realistically only 2% of taxpayers used the methods being used so we see few being disadvantaged.
The measure that will see some taxpayers disadvantaged will be the consolidation of the cents per kilometre rates into a single rate. Currently this method allows taxpayers to claim a deduction based on an estimate of kilometres multiplied by a fixed rate determined by the size of the engine of their car. This rate currently ranges from 65c to 77c but will be consolidated to a single rate of 66c. Given that most tax payers seem to claim a higher rate than this many will be disadvantaged by this change.
Overall these are all just announcements at this stage but given the changes are far less dramatic than those proposed in the previous year’s budget it is seems the government will be far more likely to gain the support to be able to get them passed.
If you would like to discuss the application of any of these measures in more details please don’t hesitate to contact us.