Tax changes affecting business in 2015

A-2015

Joe Hockey’s second budget came with much anticipation after the derision with which last years was met. Fortunately, this budget shows a dramatic about-face from the previous, and in his headline speech to parliament, Joe Hockey promised that this budget will be redirecting savings to small business. He followed this up with some big announcements that are welcome news to small business ears!

Tax Cuts for Small Business

Consistent with previous announcements, the government intend to reduce the corporate tax rate for small business’ with a turnover of less than $2 million dollars from 30% to 28.5%. However, given a large number of small business do not trade as companies, they are also offering a 5% discount to small business in other structures. This will be delivered by a tax offset to each individual receiving small business income. Unfortunately this 5% reduction is capped at $1,000 per individual which dampens an otherwise generous measure. While ‘a few percent’ may not seem like much, the combined impact of these two tax cuts is expected to produce $3.25 billion worth of tax savings.

$20,000 Immediate Write Off

This ripper announcement is a major boon to small business with an annual turnover of less than $2 million. Effective from today through to 30 June 2017, any new assets costing less than $20,000 will qualify for an immediate tax write off.

In conjunction with this, if the depreciated value of your existing assets in a ‘general pool’ total less than $20,000, the entire balance can be deducted immediately. This will result in some BIG deductions, and on its own this measure is expected to provide $1.75 billion worth of tax savings to small business!

FBT Exemption to Portable Electronic Devices

The government announced that they were extending an FBT exemption to all work related portable electronic devices. Digging beneath the ‘hood’ reveals this isn’t as big a deal as it might seem. The current legislation already exempts these devices, but limits it to only one device that performs substantially the same function for each employee. This made it unclear if you would be exempt, for example, where you provided both a laptop and a tablet to an employee. The new provisions which will take effect for the 2017 financial year simply remove any confusion about devices that have ‘substantially the same function’ by allowing an unlimited number of devices to be provided under the exemption.

Restructuring Roll-Over

While the small business Capital Gains Tax (CGT) concessions have been around for some time and made the case for restructuring small business affairs easier, the reality is that, unless we are dealing with a simple sole trader converting to a company, there have been significant CGT consequences attached to restructures, making them both complex and costly.

The government has announced that from the 2017 financial year, a CGT Roll-over will be available for other types of legal changes in legal structure. While undoubtedly these will be complex to apply, the ability to change entity without an additional tax impost paves the way for more effective business structures and associated tax planning.

Professional Costs

The cost of professional advice around setting up a new business (particularly when setting up a new structure) was previously treated as ‘black-hole’ expenditure and claimable over 5 years. Now, from the 2016 financial year, these costs will be fully deductible when they are incurred, a generous simplification!

Employee Share Schemes

While lauded in Joe Hockey’s speech, the changes to the Employee Share Scheme (ESS) rules are relatively minor. In March 2015 there were some welcome improvements to the ESS, which saw that employees would not be taxed on options until they were exercised, and gave the ability for some eligible start-ups to provide shares to employees at a ‘small’ discount. This budget merely announced some minor expansions to the ‘start-up’ component of these rules by widening the net to include some venture capital investments and ensuring employees still get the 50% discount if they exercise options and sell the underlying shares within 12 months.

Crowd Funding

Another nice announcement, but with limited backbone, was the support for crowd funding. The government are simply providing funding to ASIC to streamline the way crowd-funded equity is reported to them.

Red Tape

The cutting of red tape is unfortunately not being directly dealt with by law simplification. However the government has announced that they are providing $131 million over four years in funding to the ATO to support their digital transformation and hopefully provide taxpayers with a, quote, “improved experience.”

SuperStream

Although not announced in the Budget last night, SuperStream is mandatory for all employers making super contributions, APRA-regulated super funds and self-managed superannuation (SMSFs) fund receiving contributions. If a business has 20 or more employees, it must comply with SuperStream by 30 June 2015. If a business has 19 or fewer employees, SuperStream applies from 1 July 2015, and must comply by 30 June 2016.

Increase in Medicare levy low-income thresholds

The Medicare levy low-income thresholds for singles, families and single seniors and pensioners will increase to take account of movements in the Consumer Price Index. The threshold for singles will be increased to $20,896. For couples with no children, the threshold will be increased to $35,261 and the additional amount of threshold for each dependent child or student will be increased to $3,238. For single seniors and pensioners, the threshold will be increased to $33,044 – applies from 1 July 2014.

Overall, the changes shown in the budget show a refreshing attitude of the government toward small business, and the big $20,000 immediate write off on new assets is going to have a significant impact. The remainder of announcements are a mixed bag with many being minor and inconsequential despite the impressive ‘posturing’. Nonetheless, as a business adviser, this budget is a big positive for small business and will be sure to be putting some cold, hard cash back in the pockets of our hard working entrepreneurs!

The changes in the Federal Budget will affect every business on July 1. Subscribing or upgrading your MYOB software will ensure your business is compliant with every change from day one, including the government’s new SuperStream system for paying super contributions. Learn more about how MYOB can keep you compliant.

  • Mike

    With the $20,000 tax deduction in the 2015 budget, can I buy a second hand 4WD Pajero / Land Cruiser etc, (not a ute) that I will use for my business. If it costs less than $20k, does this count?

    • http://www.collinssba.com.au Sean Devenish

      Hi Mike,

      broadly yes, the type of vehicle and whether it is second hand won’t change whether it qualifies for the $20,000 write off. However, you will need to bear in mind what method of deduction you are using to claim the vehicle. For example, if you are a sole trader and using the cents per kilometer method to claim deductions, you will not be able to claim this deduction.

      You will also need to consider the consequences of any private use of the vehicle, depending upon your entity structure this could either limit the claim by a % or result in additional Fringe Benefits Tax consequences.

  • John Milne

    How does the 1.5% tax break to small business benefit the owner operator of the small business, when the dividend paid to release the cash from the company
    comes with a 28.5 cent franking credit? surely the ultimate tax paid by the owner shareholder is the same, irrespective of the corporate tax rate!

    • Andrew Prescott

      Hi John, good question. My understanding of the underlying intent of the budget is that the decrease in tax rate is an incentive to get small business owners to invest more in their businesses as opposed to taking the 1.5% discount in cash out of the business.

    • Matthew Collette

      Word around town is that you will still receive the full 30% franking credit.

    • Chris Houtsma

      I thought of that as well, whereby most small business companies are owned by individuals living off the profits. This is only going to help the owners if they hold back on their profits, helping the business to grow which I guess is the whole idea.

    • Sean Devenish

      Hi John,

      The budget papers propose that the franking credits attached to dividends will continue to be calculated on the basis of a 30% tax rate, thus the tax saving will be ‘real’ in this situation, at least until all the franking credits are exhausted!

  • Sue Via

    Hi

    I have found in the past small business buy a “2nd or 3rd” car (for personal use) instead of using this to update/improve the business. I am sitting in a chair that was purchased 30 years ago used in a kitchen!

  • http://www.astrolabeacc.com.au Gregory J Beattie

    You have not mentioned one downside of the new budget: the “modernising” of the car deduction methods. From 1 July 2015 the one-third-of-actual-expense method and the twelve-percent-of-cost method of calculating work car expense deductions will be removed. In addition, the cents-per-kilometre method will be limited to 66 cents per kilometre for all cars – down from 77 cents per kilometre for cars over 2.6 litres. The government expects to save $845 million by these changes. “Modernisation” – you have to hand it to them, they know how to put on a positive spin!

  • http://www.minikits.com.au Mark

    Best way to explain it is iif you spend the full 20k, and are very lucky you might get a third back at tax time. It really does not help a very large number of very small business that are already struggling. Give me a voucher at Australia Post now that would help real small businesses retailers compete with large business.

  • Daz

    If i but a $4000 laptop for my business does that mean I get the whole lot back on 30th June?

    Thanks.

  • http://www.bottrellaccounting.com.au Gavin Bottrell

    Looking forward to it