One of the key themes of this Budget is to support small businesses and grow jobs.
The main measures likely to affect small business are outlined below. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your Altitude adviser.
Small Business Tax Rate Cuts
There are cuts to the tax rate for small businesses which will apply from the 2015-16 income year.
Incorporated Entities
The tax rate for companies with an aggregated annual turnover of less than $2 million will be reduced by 1.5% (ie from 30% to 28.5%) from the 2015-16 income year. However, the maximum franking credit rate for a distribution will remain at 30%.
Unincorporated Entities
For sole traders and individuals who earn business income from a partnership or trust with an aggregated annual turnover of less than $2 million, a 5% tax discount (provided as a tax offset) will be introduced and capped at $1,000 per individual.
Small Business Accelerated Depreciation Changes
From Budget Night (starting 7.30pm (AEST) 12 May 2015), the threshold below which small businesses can claim an immediate deduction for the cost of an asset they start to use (or install ready for use) will be temporarily increased from $1,000 to $20,000. This will apply to assets acquired and installed ready for use from Budget Night through to 30 June 2017.
Only small businesses with an aggregated annual turnover of less than $2 million are eligible.
Assets valued at $20,000 or more that cannot be immediately deducted can be included in the entity’s small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter, in the same way the rules currently apply for assets costing $1,000 or more.
Also, the balance in the small business simplified depreciation pool will be able to be immediately deducted if it is less than $20,000 (including an existing pool).
The rules currently preventing a small business using the simplified depreciation regime for five years if it opts out of the regime will also be suspended until 30 June 2017.
While small businesses can access the simplified depreciation regime for a majority of capital assets, certain assets are not eligible, such as horticultural plants and in-house software, for which specific depreciation rules apply.
Note that from 1 July 2017, the $20,000 threshold for the immediate deduction of assets and the value of the pool will revert back down to $1,000.
Immediate Deduction for Business Establishment Costs
From the 2015-16 income year, an immediate deduction will be available for professional expenses that are associated with starting a new business, such as professional, legal, or accounting advice/expenses to establish a company, trust or partnership.
Under the current laws, these expenses can only be deducted over a five year period.
CGT Relief Reforms for Small Business Restructures
From the 2016-17 income year, small businesses with an aggregated turnover of $2 million or less may change the legal structure of their business without attracting a capital gains tax (CGT) liability.
This measure recognises that new small businesses may initially choose a legal structure that no longer suits them once their business is more established. They will be able to change their legal structure without being hampered by potential CGT implications.
Currently, CGT roll-over relief is only available to individuals, trustees or partners in a partnership who incorporate. This new measure provides CGT relief to many more entities.
Broader FBT Exemption for Portable Electronic Devices
The Fringe Benefits Tax (FBT) exemption for work-related portable electronic devices used primarily for work purposes will be expanded from 1 April 2016.
Small businesses with an aggregated annual turnover of less than $2 million that provide their employees with more than one qualifying work-related portable electronic device will be able to access the FBT exemption even if the additional items have substantially similar functions as the first device.
The current FBT exemption may only apply to more than one portable electronic device if the devices perform substantially different functions. This measure should help alleviate the confusion around which device is eligible for exemption from FBT where there is an overlap of functions (for example between a tablet and a laptop).
Measures Encouraging New Businesses
In order to encourage new businesses and entrepreneurship:
• Business registration processes will be streamlined with a single online portal (business.gov.au) developed for business and company registration, making it much easier to register a new business.
A new business will no longer need an Australian Company Number or business Tax File Number. It will be able to use its Australian Business Number to interact with the ATO and ASIC. The new portal (expected to be implemented by mid-2016) will provide all the relevant information clearly and will have integrated customer support; and
• A regulatory framework to facilitate the use of crowd-source equity funding will be implemented, including simplified reporting and disclosure requirements, to help small businesses access innovative funding sources.
