The Federal Budget of 12 May 2015 aims to reconnect with many Australians and provides $5.5 billion of tax relief – to stimulate small business, jobs and offset the slowdown in mining and resources.
Some of the changes presenting real opportunities for small business:
Accelerated Depreciation – Immediate Write-Off
Small businesses with aggregate turnover of less than $2 million are able to immediately deduct the costs of assets (including cars, vans, kitchens, office equipment, plant and equipment) they start to use or install ready for use, provided the asset costs less than $20,000 (previously $1,000) and is acquired prior to 30th June 2017. Small businesses can apply this $20,000 rule to as many individual items as they like.
The government has also announced that it will suspend current depreciation “lockout” laws for the simplified depreciation rules until the 30th June 2017. Currently, these “lockout” rules prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out.
Tax Cuts For Small Businesses – Companies
The company tax rate will be reduced to 28.5% (a reduction of 1.5%) for companies with aggregated annual turnover of less than $2million.
The maximum franking credit rate for a distribution will remain at 30% for all companies thus maintaining the existing arrangements for investors such as self-funded retirees.
Car Expense Deductions
The cents per kilometre method will be changed by replacing the 3 current cents per kilometre rates based on engine size, with one rate set at 66 cents per kilometre, which will apply to all types of cars, irrespective of engine size.
The government has announced that two of the methods available to taxpayers to calculate work-related motor vehicle expenses deductions will be removed. These are the 12% of original value method and the 1/3 of actual expenses method.
Entrepreneurs’ Infrastructure Program
The Entrepreneurs’ Infrastructure Program will have a budget allocation of $526 million over the next four years.
Capital Gains Tax Rollover Relief for Changes to Entity Structures
Capital gains tax rollover relief is currently available for individuals who incorporate. However, other entity type changes have the potential to trigger a capital gains tax (CGT) liability. The government will allow small businesses with an aggregate annual turnover of less than $2 million to change legal structure without attracting a CGT liability at that point.
We strongly recommend small businesses reflect on the opportunities outlined above and consider the upside from the tax relief PLUS the opportunity to possibly restructure an entity that may produce greater flexibility, asset protection and provide more options under any exit or succession.