The government has high hopes for Australian small businesses and is banking on them to boost the country’s economic growth over the next few years.

2015_MAY_AU_MONEY - What Australian small businesses need to know about the budget

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That’s good news for the owners of Australia’s small enterprises, because this year’s budget contains a range of measures that will help their businesses prosper and grow.

“This year’s budget is all about energising small businesses and helping them grow into big businesses,” the Government said.

Tax cuts for companies – and company owners

Small companies will get a tax cut – and what’s more, the company owners will also pay less tax.

Incorporated businesses with annual takings of under $2 million will receive a 1.5 percentage point tax cut, which will take their company tax rate to 28.5 per cent.

The government had already announced this before the budget. But what was less well known is that the business owners will get the same reduction on the personal income tax they pay on the earnings from their company.

The technical explanation is that this is because the franking credit rate will remain at 30 per cent. The effect of this is that when it comes time to calculate a business owner’s income tax, they’ll receive the same tax credit they would have received if their company had paid tax at 30 cents in the dollar instead of the 28.5 cents they actually paid. So the business owner will also be able to pocket the 1.5 percentage tax cut.

Applies from July 1, 2015

Less tax for sole traders

Tax cuts for companies are great news, but most small businesses don’t operate as companies. Instead, they operate as a sole trader, as a partnership or as a trust.

The government has recognised this and is also providing tax cuts to unincorporated businesses with annual turnover less than $2 million.

These businesses will receive a 5 per cent discount on the tax they pay, capped at $1000, which they can claim as a tax credit in their tax return. For instance, a sole trader who pays $16,000 in tax would receive a discount of 5 per cent, coming to $800.

Applies from July 1, 2015

Faster depreciation

All small businesses will receive an immediate tax deduction for any individual assets they buy costing less than $20,000 each.

This means that businesses will be able to receive full tax deductions for vehicles, tools, IT equipment and so on for the year they’re purchased rather than having to spread the deductions over several years as previously. Previously this only applied to assets that cost less than $1000.

For instance, imagine a business spent $17,250 on a new vehicle. Under the old rules, only a portion of that could have been claimed back in the first year – leaving a tax refund of just $776. The new rules mean that the whole lot can be depreciated in the first year, meaning the business would get back $4,916 on its tax.

This is money that businesses can reinvest in growth or pass on to the owners.

There’s also no limit to the number of purchases the business can claim.

Applies immediately and runs to the end of June 2017

Deductions for start up costs

New businesses will be able to get an immediate deduction for many of the professional expenses they incur when they set up as new businesses, such as professional, legal and accounting advice.

Currently some of these costs have to be deducted over five years, and the changes should provide much needed cash flow for these new enterprises.

Applies from July 1 2015

Tax relief for changing business structure

Small businesses which change their legal structure will no longer have to pay capital gains tax.

Under current laws, when a small business such as a company or a partnership changes its legal structure it can potentially be hit with capital gains tax. (However, this doesn’t apply to sole traders who turn their business into a company.)

Now these business can change legal structure without incurring a capital gains tax bill. This is good news because it gives established businesses a chance to assess whether their current business structure is the best for tax and succession planning, and if not they can change it.

Applies from July 1, 2016

Share schemes

One of the best ways a start-up without much cash can attract top talent is to offer them shares in the business.

But under old tax laws, employees who received options to buy shares had to pay income tax on them as soon as they received them, even if they hadn’t made any money from them and sometimes even if they were worthless. This essentially made share schemes unworkable.

Under changes introduced in the budget, employees will only have to pay tax when whey can realise a benefit from their options, by using them to buy shares.

Applies from July 1, 2015

Crowd funding

Crowd funding is a new way of raising funds for a business by seeking small amounts of capital from a large number of investors online, often for a specific purpose such as developing a new product.

New laws introduced in the budget do away with many of the restrictions and red tape associated with crowd sourced equity funding, allowing small businesses to access a wider pool of investors to help them grow.

It’s not yet clear when the changes will come into effect.

More electronic devices

The budget changes to the Fringe Benefits Tax to allow employees to have more than one FBT free electronic device – such as both a laptop and a tablet. Under current rules, these devices are considered to have the same function so FBT is payable on any more than one per employee. This will help small business workforces take advantage of cloud computing and become truly mobile.

The government is also promising to cut red tape by reducing burdensome or restrictive regulatory requirements for small businesses.

The FBT change applies from April 1, 2016

Digital upgrades

The Government plans to spend $255 million over the next four years updating its computer systems and the way it interacts with businesses and individuals. This is good news for small businesses who often interact with the government online to do things like applying for an Australian Business Number, registering a business name or paying their taxes.

All of this should get faster and easier as the programme progresses over the next few years.

Commences in the 2015–16 financial year

Wage subsidy

About $1.2 billion in wage subsidies will be provided to help businesses employ the young, the old and the long-term unemployed. It replaces several other wage subsidy programs of that total the same amount but the government says it will allow more flexibility for job seekers to meet employer demands. The subsidies are up to $10,000 for employing a mature-aged job seeker, or $6,500 for a young job seeker.

Applies from July 1, 2015

GST on digital imports

In what the media has dubbed the “Netflix tax”, the government will start applying the goods and services tax to digital products and services we buy from overseas. For many of us this will mostly apply to movies, song and games we buy from overseas companies, but businesses should also be aware that it will also apply to software. Most will be able to claim back the GST they pay.

Applies from July 1, 2015

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