Current as of May 2015
With a series of significant measures revealed in recent weeks, the Budget presented last night didn’t bring many surprises. The newspapers have extensively covered these developments, so we’ll refrain from reiterating what you’ve already read. Instead, as your tax advisor, we aim to focus on a few significant alterations affecting many of our clients and guide you in maximising their benefits.
Small businesses (those with a group turnover of less than $2m) are the winners in this Budget. They will benefit from the following:
Accelerated Depreciation
Between now and 30 June 2017, small businesses can:
- Claim an immediate deduction for assets they buy that cost less than $20,000 (up from the current threshold of $1,000)
- Write off and claim an immediate deduction for their small business simplified depreciation pool if its balance drops below $20,000
These thresholds will revert to $1,000 from 1 July 2017.
This measure applies from now, so in the lead-up to 30 June, you should consider bringing forward any planned capital expenditure of up to $20,000 per item. For a company that is a small business, a $20,000 deduction in the 2015 financial year will save you $6,000 in tax.
Tax Cuts from 1 July 2015
The company tax rate for small businesses will be cut from 30% down to 28.5%. This rate cut has been previously announced, but the impact of the change on the franking of dividends has now been clarified with the announcement that the current maximum franking credit rate for a dividend will remain at 30%.
Individuals with business income from unincorporated businesses will receive a 5% discount on income tax payable on their business income. The discount will be capped at $1,000 per individual.
Year-end tax planning becomes even more critical in years when tax rates change. You should contact us immediately if you want us to help.
CGT Roll-Over Relief for Changes to Entity Structure
From 1 July 2016, small businesses can change their legal structure without CGT ramifications. There is already roll-over relief allowing certain entities to incorporate. The proposed rules will relieve structure changes involving other entity types (e.g. individual or company rolling over to family trust).
Note that the existing Small Business CGT Concessions are also available for these types of entity structure changes and might provide a better outcome in some circumstances.
The new roll-over relief should provide some flexibility for small businesses whose initial structure no longer suits them. However, it will continue to be prudent to discuss any proposed change with us to make sure you are aware of your options and their implications.
Car Expenses
From 1 July 2015, individuals will no longer be able to claim car expenses using the ‘one-third of actual expenses method’ or the ‘12% of original value method’. At the same time, the rate applying to the ‘cents per kilometre method’ will be set at a single rate of 66 cents per km regardless of engine size. (Note that the current rates are 65 cents per km for engine sizes up to 1600cc and up to 77 cents per km for engines over 2600cc).
This change will result in lower deductions for work-related car expenses. If you want to claim car expenses in the 2016 financial year, it would be wise to ensure you’re keeping appropriate records, including maintaining a log book for a 12-week period. The ATO guide log books are here.
Summary
These are the areas which will be of most relevance to small business owners. Over the last few months, there were some whispers that there would be changes to superannuation rules. For now, they remain the same. You can now confidently do your tax planning running up to 30 June. If you have any queries, don’t hesitate to contact us.
DISCLAIMER
Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
