The Highlights Part 1
This is a highly targeted Budget that seeks to keep change within community tolerance levels.
Most spending measures target productivity gains - although small businesses with turnover between $2m and $5m will be disappointed. Revenue measures target the asset or income rich, or just plain unpopular.
Accelerated depreciation across multiple areas
• Micro business - immediate deductibility from Budget night for any assets purchased and used or installed and ready to use by 30 June 2017 that cost less than $20,000
• Start ups – immediate deductibility for professional expenses – cost of lawyers and accountants to get a business up and running
• Farmers – immediate deductibility for fencing and water facilities
Tax cuts for small business (under $2m) from 1 July 2015
• 1.5% company tax reduction
• 5% tax discount for unincorporated small businesses
GST on digital supplies
• Similar GST treatment applied to supplies of digital products to Australian consumers – including consulting and professional services – regardless of whether they are supplied by a local or foreign supplier
• Changes to work related deductions for car expenses – 12% of original value and one third of actual cost methods removed and simplification of cents per kilometre method
• Changes to salary sacrificed meal entertainment for not for profits
• Expansion of FBT exemption for work related electronic devices provided by small businesses
Accessing government benefits
• Changes to how superannuants’ income counted for social security
• Child care shake up - Collapses three current eligibility tests with one means and activity test
• Asset test changes mean 91,000 pensioners no longer qualify and 235,000 will have pension reduced
• ‘Double dipping’ Government and employer paid parental leave stopped
Micro Business (under$2m)
A tax cut if your business’s aggregated turnover is less than $2m that is. If not, bad luck.
Small businesses with a turnover of $2m or below make up 97.5% of all businesses in Australia. The majority of taxpayers in this sector are not in a company structure - accounting for only 11% of the total company tax take despite the sheer volume of businesses represented. 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).
* based on 2011/2012.
Small business tax cuts
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 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%.
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.
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.
Accelerated depreciation on purchases up to $20k
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). Many of us remember the last time the immediate deduction threshold was changed for small businesses and the confusion that was caused when the amendments were held up in Parliament.
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.
FBT holiday for portable electronic devices
Date of effect: 1 April 2016
Currently, an FBT exemption can apply to more than one portable electronic device used primarily for work purposes, but only where the devices perform substantially different functions. 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.
Immediate deductions for fencing and water facilities
Date of effect: For income years on or after 1 July 2016
From 1 July 2016, primary producers will be able to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills.
Plus all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed will be deductible over 3 years.
The changes will not be limited to small business entities unlike the other proposed changes to depreciation rates.
Currently, the effective life for fences is up to 30 years, water facilities is 3 years and fodder storage assets is up to 50 years.
Remember to call (03) 5559 1444 for a free discussion if you have any queries.