As you would know, the budget was released last week, with the Australian Government aiming to stimulate the small business sector.
Notable changes are detailed below.
Please contact us for further information or advice on any of these matters.
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Federal Budget 2015-16
Expanding accelerated depreciation for small businesses
Businesses with a turnover of less than $2 million can immediately write off assets costing less than $20,000 (currently less than $1,000) acquired from 7:30pm 12th May 2015 to 30th June 2017.
Assets valued at $20,000 or more can continue to be placed in the small business simplified depreciation pool (â€˜the poolâ€™) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
While small businesses can access the simplified depreciation regime for a majority of capital assets, certain assets are not eligible (such as horticultural plants and in-house software) for which specific depreciation rules apply.
Tax cuts for small business
From the 2015/2016 year:
Reduction in company tax rate â€“ The company tax rate will be reduced to 28.5% (i.e., a reduction of 1.5%) for companies with aggregated annual turnover of less than $2 million. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30% rate on all their taxable income.
Note that, the current maximum franking credit rate for a distribution will remain at 30% for all companies, maintaining the existing arrangements for investors, such as self-funded retirees.
5% discount on tax payable for other taxpayers â€“ Individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received by an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and will be delivered as a tax offset.
Claiming car expense deductions
Currently, an individual (or a partnership which includes at least one individual partner) can claim car expense deductions in respect of a car owned or leased (â€˜cents per km methodâ€™, the â€˜12% of original value methodâ€™, the â€˜one-third of actual expenses methodâ€™ or the â€˜log book methodâ€™).
From the 2015/16 income year, the â€˜12 per cent of original value methodâ€™ and the â€˜one-third of actual expenses methodâ€™ will be removed.
The â€˜cents per kilometre methodâ€™ will be modernised by replacing the three current (cents per kilometre) rates based on engine size, with one rate set at 66 cents per kilometre (in respect of all cars).
Immediate deduction for professional expenses on commencing a new business
Currently, some professional costs associated with commencing a new business are deducted over a five-year period.
From 1 July 2015, the government will allow businesses to claim an immediate write-off for a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.
Other changes included:
Excluding â€˜fly in fly outâ€™ workers from the Zone Tax Offset where their normal residence is not within a particular zone
From 1 July 2016, the government will allow small businesses with a turnover of less than $2 million to change legal structure without attracting a CGT liability at that point. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more
From 1 July 2017, taxpayers with HELP (Higher Education Loan Programme) debts going overseas for more than 6 months will be required to register with the ATO, with their worldwide income being subject to the same HELP repayment rates as debtors in Australia
Accelerated depreciation for primary producers
Changes to residency rules for temporary working holiday makers. From 1 July 2016, most people who are temporarily in Australia for a working holiday will be treated as non-residents for tax purposes, regardless of how long they are here. This means they will be taxed at 32.5% from their first dollar of income (up to $80,000)
Relaxing the FBT exemption for work related electronic devices