Mark Lindsay, Partner at DP Loewy & Co, explains the how the updates in the 2015 budget impact small business owners.
There were some major concessions for small businesses to come out of the 2015 budget that may be of some benefit to the reader. These include:
- The tax rate for companies with a turnover of less than $2m will be reduced from 30% to 28.5% from the 2015/2016 tax year. There is however a sting in the tail as companies may eventually run short of franking credits, so at the point of accessing profits through dividends there may be a catch up tax.
- Unincorporated businesses will receive a 5% tax discount capped at $1000 per person. This will apply to sole traders or partnerships.
- The limit for claiming immediate deductions on assets has been increased from $1000 to $20,000 and is effective immediately until 30 June 2017. This is available per asset and not in total so you can have multiple applications.
- Professional startup costs are immediate deductions from 1 July 2015 which will assist anyone entering business as previously these were deductible over five years at best.
- There is additional capital gains tax relief for those restructuring their business from 1/7/2016.
From a tax planning perspective the major issue is the immediate deduction for assets up to $20,000. This has already seen a widespread uplift in asset purchases so many taxpayers are taking advantage of this concession now. Businesses may consider accelerating asset purchases to take advantage of this and purchases include vehicles. Note however you do not get the first $20,000 on assets over $20,000. Assets over $20,000 will go into your small business pool as they currently do, with a deduction of 15% in the current year and 30% thereafter.
A cash flow consideration could be to borrow in order to fund asset purchases. Interest rates are at record lows and you would get the benefit of the tax deduction up front as well as recovering the GST for those that are GST registered. Note however borrowing structure is critical as this will not apply for leases and those reporting GST on a cash basis will not get an upfront GST claim so you will need to clarify your position with your professional advisor. Using this tactic could get you a healthy tax deduction for a minimal up front outlay.
The flow on from the new asset rules is that you can deduct the value of your small business pool if it is below $20,000, which will also provide a handy tax deduction. You should check the value of your small business depreciation pool to see if this applies to you.
The introduction of CGT relief from 1 July 2016 will give businesses a chance to restructure without incurring CGT. Presently there are limited circumstances where this applies, such as a sole trader rolling over into a company. The changes will bring in more flexibility and allow other structures such as trusts to be considered. It will particularly be of interest to sole traders or partnerships that may be seeking ways to more effectively structure their tax affairs and allow you to income split within accepted taxation laws. A lot of controversial articles are written about trusts but they are a long accepted tax structure as long as you do not breach established personal service or income splitting laws. If you have a genuine business structure then this should be the case. Sole traders with no staff would be unlikely to take advantage of these concessions.
If you wish to take advantage of any of the budget concessions I recommend you seek professional advice as personal circumstances can differ.
Mark Lindsay, Partner, DP Loewy & Co
Mark Lindsay is a chartered accountant and partner at DP Loewy & Co Pty Ltd with over 30 years’ experience in the accounting profession. His company offers a broad range of accounting services to businesses of all sizes, and provides innovative superannuation and tax planning solutions. Mark can be contacted on 02 9362 3332 or firstname.lastname@example.org.