In this article we will explain the small business tax breaks, plus we talk about the measures to reduce red tape and other initiatives to encourage start-ups and entrepreneurship.
The key budget areas that will appeal to SMEs are:
- Cut in company tax rate of 1.5% to 28.5% for businesses earning less than $2 million;
- Tax write off for work-related assets up to $20,000 effective Tuesday night (previous threshold was $1,000);
- A tax discount of 5% for sole traders, trusts and partnership structures which are unincorporated businesses, capped at $1000;
- Expanded Fringe Benefits Tax exemption for work-related portable electronic devices;
- Reduction in red tape and incentives to drive jobs so employers are encouraged to take on unemployed job seekers.
As the 2015 Federal Budget was released, Treasurer Joe Hockey said the centrepiece is the $5.5 billion Growing Jobs and Small Business package that will empower small business to “invest, grow and create jobs”.
Hockey says there has never been a better time to start or grow a business because the extra capital means they will be able to reinvest and push for further growth. The small business sector is increasingly the engine room of our economy, representing 96% of all Australia’s businesses and employing more than 4.5 million people.
Minister for Small Business, Bruce Billson, says from 1 July 2015, the Government will cut the company tax rate for up to 780,000 businesses with annual turnover up to $2 million by 1.5 percentage points to 28.5% making it the lowest small business company tax rate in almost 50 years.
Unincorporated businesses, such as sole traders, partnerships and trusts, will also get a 5% tax discount from July 1 up to $1,000 a year.
Another measure to capture the headlines is the instant tax deduction for assets up to $20,000, which is a huge increase on the previous $1,000 threshold. This is available from Budget night until 30 June 2017, although some commentators have urged small businesses to be cautious about splurging until this package passes the Senate.
It is expected the ATO will closely monitor the number of Australian Business Number (ABN) applications to keep an eye on any attempt to rort the scheme.
Billson says the $20,000 tax break applies to businesses that can demonstrate ongoing activity via quarterly Business Activity Statements and the business must be actively trading to be eligible for the break.
Examples of the work-related assets could be new kitchen equipment or new tables and chairs if you run a café. For tradespeople it might be new tools or a computer for the home office.
Most assets involved in running a business will be covered by the two-year scheme aside from some items that are not deductible, including some horticultural plants and any software developed in-house by a business.
Software purchased for business use, for example, an account-keeping program, can be claimed.
Hockey says small business is critical to Australia’s economic prosperity. “Our future growth will come from growing small business into big business… Every big company in the world started small.”
The budget also provides $330 million for training programs to support young people to become job-ready and $1.2 billion in subsidies for employers who hire long-term unemployed job seekers.
Measures to reduce red tape include:
- expanding the Fringe Benefits Tax (FBT) system for work-related portable electronic devices;
- reforming Capital Gains Tax (CGT) rollover so SMEs can change the legal structure of their business without a CGT liability;
- increasing funding to the Australian Tax Office to crack down on GST fraud; and
- consulting on potential changes to the Corporations Act to reduce compliance costs so small proprietary companies can raise new capital more easily.
The package also encourages business start-ups and entrepreneurship by:
- allowing start-ups to claim professional expenses when they begin a business, such as legal fees rather than writing them off over five years;
- setting up a single online registration site to make the process quicker and simpler;
- enabling small businesses to access crowdsourced equity funding more easily; and
- expanding tax concessions for Employee Share Schemes.
For a break-down of the budget by sectors visit us tomorrow.