Worth $5.5bn, the Small Business package aimed at stimulating business spending and employment falls short for larger SMEs, however micro businesses stand to gain.
The Small Business landscape is comprised of many different business entities, however it's the micro businesses with less than $2m in turnover that stand to gain the most from the $5.5bn SME package.
Small businesses with a turnover of $2m or less make up 97.5% of all businesses in Australia, contribute approximately 11% of the tax take and well under half of these businesses paid net tax.*
There are only 72,000 businesses with a turnover between $2m and $5m. Despite the small volume, these businesses contributed 10% of the total company tax take. These businesses did not receive any additional benefits in the Budget to help them grow and develop (aside from primary producers).
The lack of specific initiatives outside the tax cut to support the growth of larger SMEs is unfortunate, given it's more likely to be these companies that will employ new staff and continue to reinvest into the business as they grow, which is one of the stated objectives of the Budget.
* based on 2011/2012.
Date of effect: From 2015/2016 income year
The Government has announced tax reductions for small businesses with an aggregated annual turnover below $2m regardless of entity type.
For taxpayers operating through an unincorporated business structure (partnerships, trusts, etc.), they will receive a 5% tax discount on the income tax payable on business income received. The discount is capped at $1,000 per individual for each income year, and delivered as a tax offset.
For companies, the company tax rate will be reduced by 1.5% to 28.5%. Maximum franking credit rates for a distribution will remain unchanged at 30%.
It's important to remember that you need to make a profit to benefit from these changes. The last taxation statics released by the ATO showed that less than half of all businesses with this income level made a taxable profit.
Date of effect: Between 7.30pm (AEST) 12 May 2015 and 30 June 2017
Businesses with an aggregated turnover of under $2m can now immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000.
The message is clear on this one – get out and start spending. Of course this is subject to the amending legislation passing through Parliament (and in a timely manner).
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 pool) and depreciated at 15% in the first income year and 30% each income year thereafter.
The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The 'lock out' laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out) will be suspended until 30 June 2017 allowing all small businesses to take advantage of the temporary increase in the deduction threshold.
Date of effect: 1 April 2016
Applying to businesses with and aggregated turnover of under $2m, this new measure will simplify the rules by removing the requirement for the devices to be substantially different.
This should address some of the uncertainty that has arisen when applying the rules to tablets, laptops, phones and other devices that are hard to distinguish from each other in terms of functionality.
Date of effect: Applies from 2015/2016 income year
As previously announced, start ups will be able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice. Generally these expenses are deductible over 5 years.
Date of effect: Applies from 2016/2017 income year
Small business with an aggregated turnover under $2m will be able to change their legal structure without triggering CGT.
CGT rollover relief is currently available on transfer of business assets from individuals, partnerships and trusts into a company structure but all other entity type changes have the potential to trigger a CGT liability.
It is expected that this would allow a much broader range of restructuring options without triggering CGT. For example, a sole trader may be able to restructure their operations into a trust structure. Bear in mind that other tax issues may still need to be addressed on restructuring a business, particularly transfer duty.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.