Small business owners are among the big winners in this years Federal Budget, announced last night in Canberra, with a $5.5 billion jobs and small business package announced. This represents the biggest small business package announced in Australia’s history.
The budget announcement has been met with considerable industry support. The Chamber of Commerce and Industry Queensland Director of Advocacy Nick Behrens was enthused by the package announcement, saying “The Budget will benefit small business through boosting confidence rather than detracting from it – as occurred last year. When coupled with the range of stimulus measures, small business is obviously the biggest winner from this Budget. In 20 years I can’t recall such a small business-friendly Federal Budget.”
This positive reaction to the budget announcement was echoed by NSW Business Chamber CEO Stephen Cartwright, who said “Five years ago, the small business community wasn’t even mentioned on budget night, but now it is front and centre of Budget commentary. In fact, this is a small business Budget”.
The Accounting sector have also responded favourably to the budget announcement, with IPA Chief Executive Andrew Conway telling Accountants Daily that “Through this Budget, the government has recognised that accountants are the trusted productivity advisers to small business.”
Conway continued, “That’s been proven in this Budget by the inclusion of the immediate deductibility of professional advice, the instant asset write-off and the restricting concessions, all of which sit firmly in the realm of professional accountants to provide excellent advice to small businesses who need it.”
The overall package is valued at $5.5 billion, designed to stimulate small business and improve employment opportunities. The stimulus aimed at small businesses will see:
- 1.5% tax cut for small companies
- 5% discount for small unincorporated businesses
- Immediate deductibility on every asset costing less than $20,000 purchased from July 2015 until the end of June 2017.
- Measures to encourage start-ups and entrepreneurs.
- Cutting red tape for small business.
Tax Cuts
The Federal Government claims it will cut company taxes by $1.5 billion over the next four years.
For 780,000 incorporated businesses, of which see an annual turnover under $2 million, the company tax rate will be reduced by 1.5% to 28.5%. This represents 90% of incorporated businesses in Australia. The tax cut will apply from 1 July, 2015. The franking credit rate will remain unchanged at 30%.
For unincorporated businesses, a 5% tax discount with an annual turnover of under $2 million will come into effect from 1 July 2015. The discount will be capped at $1,000 per individual in an income year.
All small businesses will get an immediate tax deduction for any individual assets they buy which cost less than $20,000. The cuts are designed to encourage small business owners to bring forward investment in the assets they need to grow their business and service their customers.
Encouraging Start-Ups
280,000 small business start-ups were launched in Australia during the 2013/14 financial year. In a measure to boost entrepreneurial efforts, the government are:
- Allowing entrepreneurs to immediately deduct professional expenses incurred when starting a business, such as legal expenses, rather than writing them off over five years.
- Streamlining the business registration process through developing an online registration site (this includes company registration).
- Expand tax concessions for employee share schemes. Many start-ups employ share schemes for staff as a way of building staff loyalty and offsetting wage costs. These tax concessions will enable owners to invest that money back into the economy. Employees will not generally have to pay income tax until they receive a benefit from their options.
- Removing obstacles to crowd-sourced funding, such as existing restrictions on the number of sources one can receive funding from based on company structures.
(Source: The Commonwealth of Australia)
The Federal Government has identified a significant discrepancy between different-sized businesses and the costs associated with red tape.
A small to medium-sized business is currently paying $12 per $1000 in turnover on tax compliance costs, compared to just $2 by large businesses. Feeling the squeeze far more are those running micro-businesses (generally considered to be a business with fewer than five staff) who are paying a whopping $90 per $1000 in turnover to maintain tax compliance.
The Government plan to cut red tape within the Fringe Benefits Tax system by expanding the exemption for work-related portable electronic devices. With employees and small business owners constantly connected to work through general communication and cloud services, it is more important than ever before to ease the squeeze on connectivity costs.
Capital Gains Tax rollover relief will be offered to small businesses seeking to change their legal structures while retaining the same owners. For new businesses that form using a legal structure that doesn’t suit their needs, this relief will limit the number of businesses who stick with an impractical structure, inhibiting their ability to grow, simply to avoid the cost, risk, and complexity involved in a change.
In addition, the Government are set to release a consultation paper on potential changes to the Corporations Act in an effort to reduce unnecessary burdensome or restrictive regulatory requirements that exist for small business.
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Such significant tax concessions to small business are welcome. Not only will it serve to be a considerable boon to the many Australians who are currently working hard to make their small business a success, but it will also stimulate the accounting sector as they provide the guidance required to capitalise on the benefits that this budget announcement offers.
