Small businesses, defined as those with annual turnover of up to $2 million, will certainly welcome the immediate write off available for all assets of $20,000 or less purchased from Budget night up until 30 June 2017.
This will provide an immediate spending incentive before June 30 and for the next two years. This measure will apply to every asset purchased for less than $20,000 for businesses with turnover up to $2 million and there is no limited to the numbear of assets that can be purchased.
Assets costing more than $20,000 can be pooled and depreciated at 15% in the first year and 30 per cent thereafter.
The accelerated asset write-off for small business also simplifies tax compliance as businesses are no longer required to account for these assets over their useful life. So this is a double-win for eligible businesses.
What I think is disappointing however is the number of businesses that will be able to take advantage of this opportunity. It would have been desirable for the threshold to be lifted and indexed.
In addition, extending the incentive to private businesses (too often referred to interchangeably with small business) with higher turnover would really boost Australia’s economy.
The reduced tax rate of 28.5 percent for small businesses operating as a company is also a welcome change. Australia joins other countries in having a lower rate for small companies although the benefit is smaller than in other countries.
Having dual corporate tax rates is not ideal as it introduces more complexity into the tax system however Australia is not unique in this respect.
It should be seen as the practical cost of having a targeted measure aiming to give small business, and hence the wider economy, a kick-start.
Not all small businesses operate through a company and so sole traders, partnerships and trusts do not benefit from this measure.
The Budget addresses this issue by allowing a 5 percent tax discount up to $1,000. The tax reduction changes will not apply until the 30 June 2016 year and so the savings will not reach small businesses until their tax returns are lodged possibly as late as May 2017.
Simplifying measures for small business
The Budget announcements on digital age investment to improve interactions with government and a simpler way to file tax returns is welcome – any reduction in compliance costs for business is good.
From July 1 2016 there will be ability for small business to restructure to another form of business entity without incurring a capital gains tax liability. This measure is not available until the 2017 financial year.
Small business can choose their choice of entity knowing they can change it later however in making such a decision the stamp duty implications will need to be considered.
This measure does not apply yet and the detail of how it will apply will need to be reviewed when it is released.
In addition, it will only apply to small business and presumably the structure will need to change before the business grows and exceeds the $2 million turnover threshold.
Good news for start-ups
The Budget confirmed the previously announced improvements to share plans meaning that for small businesses operating as companies, along with large companies, they will be able to incentivise staff or key people with share options. This is great news for start-up businesses where equity upside can be offered to attract and retain key people.
Small business will also be able to get an immediate tax deduction for start-up costs such as feasibility studies or advice received prior to a business commencing.
Previously these costs were deductible over 5 years. This measure is capped at $10,000 and will be useful to any new businesses setting up. This measure does not apply until July 1, 2015 and it is not known whether start-up costs incurred before 1 July 2015 will become immediately deductible or will continue to be deductible over 5 years.
But it wouldn’t be a Budget if there was not at least something to grumble about – and businesses and employees might be surprised to find that the claiming of car expenses is to change, with taxpayers expected to pay over $800 million more tax through reduced car expenses claims.
On balance, its good news for small business
But more widely, smaller businesses will be feeling pretty positive. Like all businesses, they want stable conditions at all levels so that they can invest and recruit staff with certainty.
When employing, businesses would welcome measures that increase the pool of job candidates and more assistance with child care and parental leave should be viewed through this lens.
The Budget measures here should go some way to encourage more women into the workforce.
This was not a Budget with lots of complex tax measures – indeed, this was not expected given that the government’s tax reform process has not yet reached a White Paper state.
The government will be expected to show its cards on significant tax reform over the next year in the lead up to the next election. For now, small business will consider the Budget positively and will take its lead, in part, from the leadership shown in implementing those measures.
If business can feel a sense of stability and certainty, it will be more inclined to invest and employ more people, which we all want to see.
