Budgeting for Business – The 2015 Budget in numbers for small business

The 2015 Federal Budget has been handed down to much analysis and rhetoric, but what does it actually mean? This article explores the effects of Joe Hockey’s second budget on small business in raw numbers.

At the outset, it should be noted that the application of these policies is conditional upon their approval by the Senate. In this article, “small business” refers (in every case) to businesses with an annual turnover of less than $2 million.

The headline policy is the cut in the corporate tax rate for small businesses. From July 1, small businesses will pay tax on profits at 28.5%, down from 30%. Further to this, owners of unincorporated small businesses (for example, sole traders, partnerships and trusts) will receive a 5% discount on their tax bill, up to a maximum value of $1,000. These policies have been implemented as the first part of the government’s plan to eventually reduce the corporate tax to a more internationally-competitive level.

The other headline-grabbing announcement was the massive policy reversal on instant asset write-offs. This policy allows small businesses to immediately deduct the full cost of assets costing less than a defined threshold. Having reduced the threshold from $6,500 to $1,000 in last year’s budget, this year’s budget will see the threshold raised to $20,000 for assets acquired and installed by June 30, 2017. From fiscal 1 June 2017, the threshold will revert to $1,000. As a result of the temporary increase in the threshold, assets that cost more than $20,000 will be depreciated by 15% in the first income year, and 30% each year after that (these depreciation rules applied to assets that cost more than $1,000 under the 2014 budget).

It should be noted that items of capital expenditure that are subject to specific depreciation rules are ineligible for the instant write-off scheme. Additionally, the revised threshold only applies to assets to the extent they are used for tax-deductible purposes.

The new budget will provide an exemption from capital gains tax for business restructures. Businesses with annual turnover of less than $2 million will be able to alter their business structure (for example, from a sole trader to a company) without incurring any liability to pay capital gains tax. This rule will not be implemented until fiscal 2017.

Finally, the fringe benefits tax will be relaxed on small businesses that provide employees with multiple electronic devices. From April 1, 2016, all electronic devices provided by the employer for work purposes will be exempt from fringe benefits tax, even if the devices share similar functionality (for example, a smartphone and tablet).

The information contained in this articles is general in nature, and was not compiled with any specific circumstances in mind. If you consider the information contained in this article may relate to your business, we recommend that you get in touch with your accountant to obtain further specific advice relevant to the individual circumstances of your business.