Budget HYPE! What is with all of the budget talk, cynicism and expectations! It's become not too disimilar to the lead up to the Logies.... have we gone too far with that comparison? So.... what was the fall out?
This was a budget many thought would be geared towards expectation management rather than meaningful reform. However, Treasurer Scott Morrison surprised some with significant tax reform for small businesses in a bid to drive the "innovation agenda". This article explores the key Budget policies as they affect small business and superannuation. It is not tax or accounting advice - we can point you to our key partners for that if you need it. It is just our take on the key things you might be interested in knowing more about!
Although structural tax reform has been put off until the election, the Budget contained significant tax breaks for small businesses. Most notably, the corporate tax rate for small businesses will be cut from 28.5% to 27.5% from . Additionally, the maximum revenue a business may earn before losing its 'small business' classification will be raised to $10 million from $2 million. This will result in more than 500,000 Australian businesses being reclassified as small business for tax purposes.
Additionally, the 'Tony's Tradies' policy many of you would have taken advatage of - the one allowing assets with a cost price up to $20,000 to have their full value immediately deducted - will be extended to all businesses within the new definition of small businesses. This scheme will remain in place until . So there is no need to rush out and buy unnecessary things tomorrow!
For businesses earning more than $10 million per year, the Government has committed the 27.5% tax rate will be gradually applied to larger businesses, with all companies paying 27.5% by 2024. And, the Government aims to have all businesses paying 25% tax by 2027. This is a significant element of the government's drive to entice businesses to invest in the development of innovative technologies and processes in Australia, with the Treasurer acknowledging that Australia's present tax regime is 'uncompetitive'.
The flip side of the tax cuts is that the Government will commit additional funds to boost the compliance capabilities of the ATO to crackdown on multinational entites evading tax by improperly transferring profits offshore, as companies from Google to Rio BHP Billiton have been accused of doing. So long as this doesn't convert to more red tape for small business, it sounds like they are now chasing the right people!
The Prime Minister and Treasurer have made a big deal about delivering 'tax cuts for middle Australia'. What they have actually done is take their first steps towards addressing 'bracket creep' - the situation where workers are forced into a higher tax bracket because of modest wage rises to account for inflation. Workers will now have to earn in excess of $87,000 before being subject to a 37% tax rate, up from $80,000 upper threshold.
For the highest-earning Australians, the 2% budget repair levy will be abolished, reducing the top marginal tax rate from 49% to 47%.
For Australians in the lowest tax bracket (earnings up to $37,000 per year), they will now be eligible to receive a refund of up to $500 of the tax paid on super contributions.
The big news on superannuation is a cap on the amount that can be held in a tax-free, "retirement phase" superannuation account. For higher income earners, these accounts will now be capped at $1.6 million. This cap will be introduced for both current and future retirees. This will take effect from . Amounts in excess of the $1.6 million cap can still be left in the "accumulation phase" account, taxed at 15%, and then used to top-up the retriement phase account back up to the $1.6 million maximum amount.
Additionally, the annual cap on concessional contributions - voluntary contributions made from workers' pre-tax income - will be further lowered to $25,000 per year, with a new cap limiting total concessional contribution across a worker's career to $500,000.
Small businesses will ultimately be designated as "winners" from this year's budget. However, the changes to superannuation regulations will affect a number of small business owners (especially under the new definition), and those persons should consider seeking independent, professional advice. Let us know if you need someone to talk to and we can do the introductions.
As a final note, the Government's "Youth Jobs Path" program to provide internships to young, unemployed welfare recipients may provide an opportunity for small businesses to take on new staff at a subsidised rate. Businesses would receive a $1,000 payment upfront as an incentive to take participants as interns, with a subsidy of between $6,500 and $10,000 if those internships are converted into permanent jobs.
Disclaimer: We are not accountants, financial planners or tax advisors! Please let us know if you spot an error or need further information on anything we have outlined. Otherwise, over and out until the election hype!
Article by: David Kehoe, Business Improvement and Compliance Consultant