The Abbott Government has delivered its second budget which provided a number of areas of society with relief and a number with extra burdens. In this article we will focus on Small Business because, in the words of the Treasurer, “Our future growth will come from growing small business into big business.”
Small business appear to be the big winners out of the budget and below we set out the major items affecting small business. Because the legislative changes giving effect to the major benefits are subject to the usual anti avoidance measures we highly recommend seeking advice on any transactions you propose entering into in order to capitalise on these new benefits.
The key areas relevant for small business owners are:
- Small business tax rate cut to 28.5% for Companies
- Small business tax discount for unincorporated small business
- Small business asset accelerated depreciation write-off up to $20,000 per year
- Immediate deductibility for professional expenses re start-ups
- CGT roll-over relief for change to entity structure
Small business tax rate cut to 28.5% for Companies
The Government announced a cut in the company tax rate of 1.5% applying to small businesses with turnover of less than $2M. This cut is effective 1 July 2015. This means that qualifying businesses would, from 1 July this year, pay 28.5% tax on their taxable incomes. Companies who do not qualify (those with annual turnover of $2M or above) will continue pay the current 30% tax rate on all their taxable income.
The 30% maximum franking credit rate for a distribution will not change. An initial benefit applies from 1 July 2015 when companies paying PAYG installments having the new rate applied to those installments.
Small business tax discount for unincorporated small businesses
About 70% of small businesses are sole traders, trusts and partnerships and are therefore not able to benefit from the reduced 28.5% rate. The Government has therefore sort to provide tax relief to those businesses by introducing a 5% tax discount with effect from 1 July 2015. This will mean that individual taxpayers with business income not derived through a company structure, where that business has annual turnover of less than $2m, will be eligible for the tax discount. The discount will be capped at $1,000 per annum and will be received as a tax offset through their end of year tax return.
Small business asset accelerated depreciation write-off up to $20,000 per year
Included in the budget is another tax saving measure whereby qualifying small businesses will be entitled to an immediate tax deduction. These are the rules:
- Less than $2M turnover
- Amount of deduction – $20,000 per asset purchased
- Installed ready for use before the end of a tax year.
- Eligible assets could include things like cars, vans, machinery, etc.
This deduction is available for assets installed ready for use after 12th May 2015 with a sunset clause ending it on 30th June 2017.
Assets valued at $20,000 or more will continue to be subject to the current simplified depreciation rules but those pools are now subject to immediate deduction if and when their balance drops below $20,000.
From 1 July 2017, the existing thresholds and simplified depreciation rules come back into force.
Immediate deductibility for professional expenses re start-ups
Commencing from 1 July 2015 the cost of a range of professional services incurred when starting a new business, such things as legal and accounting advice will be allowed as immediate deductions rather than as deductions over a 5-year period.
CGT roll-over relief for change to entity structure
Commencing from the 2016-17 income year small businesses with an annual turnover of less than $2m will be able to change legal structure through which the business operates without attracting a CGT liability at the time of the change.
Currently CGT roll-over relief is only available to individuals who incorporate whilst transferring your business to, for example a trust, can potentially give rise to a CGT liability.
Work related car expense deductions
From 1 July 2015, work-related car expenses will only have two methods as the basis for a taxpayer’s claim. Those methods are the percentage of total costs of running the vehicle based on a log book and the cents per km basis. The budget also removed the sliding scale under this method and replaces it with a flat rate of 66 cents per kilometre for all claims regardless of engine size.
Taxpayers who are currently claiming motor vehicle expenses should re-assess their chosen method, particularly those who claim the cents per kilometre and own medium to large cars as the change will result in a maximum reduction of $550 in deductions per car per year.
End of Financial Year Planning
Now is the time to ensure that you maximise your wealth for this financial year. Contact us and arrange a meeting with a view to reviewing your current financial and taxation affairs.