Tax Changes out of the Federal Budget 2015

Posted by Jack Qi on 12-May-2015 13:53:00

How useful are the Budget changes to SME business and startups? Here’s Azure Group Tax team’s take on the measures and how “useful” each one is, with a rating of LOW, MEDIUM or HIGH.

Overall, we feel that this is a timid Budget produced by a Government that lacks the political firepower to implement structural changes for the benefit of the Australian economy in the long term.

Small business company rate cut

What is it: tax rate for companies with an aggregated annual turnover of less than $2m will be reduced by 1.5% (from 30% to 28.5%) from 1 July 2015. The maximum franking credit rate for dividends will remain at 30%

Usefulness rating: MEDIUM

Commentary: this is a step in the right direction. The tax cut is only a temporary one because the company profits will ultimately be paid out as a dividend to its shareholders, and the individual tax rate has not been cut. However it is positive that the franking credit rate remains unchanged, potentially resulting in lower “top-up” tax at the individual shareholder level on the dividends.

Small business accelerated depreciation

What is it: for small businesses with an aggregate annual turnover of less than $2m, an immediate deduction can be claimed for cost of an asset acquired and installed between 7.30pm 12 May 2015 and 30 June 2017. Certain specific assets such as in-house software are excluded.

Usefulness rating: HIGH

Commentary: this is an excellent development for small business and will be especially useful for those accessing the R&D tax incentive as it brings forward both the tax deduction and the R&D net benefit. The government first increased, then decreased and now significantly increased the threshold for immediate deduction. The policy intent is to encourage small business to go out there and spend money to stimulate the economy,

Employee share scheme changes

What is it: these are further changes to the previously announced changes effective 1 July 2015. These are:

  • excluding eligible venture capital investments from the aggregated turnover test and grouping rules for the start-up concession,
  • 50% CGT discount should still be available to sale of certain shares even if those shares were held for less than 12 months, if the shares were acquired via employee share options that satisfied the startup conditions (one of our recommendations in our submission to the Government)
  • allowing the ATO to exercise discretion in relation to the minimum three-year holding period in certain situations, as part of the startup concessions.

Usefulness rating: HIGH

Commentary: refer to our blog for a detailed list of changes 

Tax discount for non-company small businesses

What is it: a 5% tax rebate will be introduced for taxpayers with income from an unincorporated business, such as a sole trader, trust or partnership, that has an aggregated annual turnover of less than $2m.

Usefulness rating: LOW

Commentary: another step in the right direction but the benefit is very small due to the $1,000 cap per individual

Immediate deduction for business establishment costs

What is it: professional, legal and accounting advice or legal expenses to establish a startup company, trust or partnership will be immediately deductible from 1 July 2015.

Usefulness rating: LOW

Commentary: a positive development over the previous rule where these costs must be deducted over 5 years. But the question is, how useful is this when most startups don’t have taxable profits in the first few years anyway?

Business startup process to be streamlined

What is it: the Government is making it simpler and quicker to set up a business with the creation of a single portal (implemented in 2016) for ABN, business name, GST, and PAYG matters.

Usefulness rating: LOW

Commentary: this is merely a measure that is in line with the trend towards efficiency and reducing red tape.

Capital gains tax relief reforms for small business restructures

What is it: available for small businesses with an aggregated annual turnover of less than $2m, effective 1 July 2016. It will enable small businesses to change their legal structure without potential CGT implications.

Usefulness rating: LOW

Commentary: we await further details. The Budget paper gives an example where a business “Moves from being a sole trader to a trust – gets CGT rollover relief so no CGT liability at that time”. Based on this, the benefits will be limited because trust structures are far less common than companies for businesses and are not eligible for R&D tax incentive. It would have been more beneficial if the Government implemented measures to make existing Small Business CGT Concessions easier to access.

FBT exemption for portable electronic devices, from 1 April 2016

What is it: Small businesses with an aggregated annual turnover of less than $2m that provide their employees with more than one work-related portable electronic device without FBT

Usefulness rating: LOW

Commentary: this is in keeping with a modern workface that has multiple smart phones and tablets/laptops.

Individual work related car deductions simplified

What is it: from 1 July 2015, the rarely-used “12% of original value method” and “one-third of actual expenses method” will be abolished. The “cents per kilometre method” will be simplified by replacing the three current rates based on engine size with one rate of 66 cents per kilometre for all motor vehicles.

Usefulness rating:  LOW

Topics: Budget, Tax