he 2015 federal budget contains a host of tax breaks and other stimulus measures that come as a boon for small to medium-sized enterprises (SMEs) in Australia.
As of 7:30pm on budget night until 30 June 2017, SMEs will be able to claim an unlimited number of tax deductions on asset purchases under $20,000 each. Excluding stock, businesses can claim almost any work-related expenditure – from cars, machinery and tools, to home office equipment and electronics. These purchases can be claimed as immediate tax deductions rather than having to spread the deductions over a number of years.
Purchases of $20,000 or more can also be claimed but these expenditures will be pooled and depreciate at a rate of 15% in the first income year and 30% in each year after that.
There is no cap on the total amount of purchases, which could trigger a flurry of spending and give the economy a much-needed boost.
These tax breaks have been designed to improve cash flow for SMEs, which are known to contribute to job growth and drive innovation. It is hoped that these measures will increase productivity, stimulate retail spending, assist start-ups and help keep SMEs competitive.
In addition to the surprisingly generous deductions provisions, as of 1 July 2015, incorporated SMEs with less than $2 million in annual turnover will receive a tax cut of 1.5% – from a 30% tax rate down to 28.5%. This will result in a personal benefit to small business owners through the dividend franking credits for SMEs, which will still be maintained at the full 30% rate. With their business paying tax at the new 28.5% rate, this will effectively result in a personal tax cut for such business owners.
Sole traders registered for an ABN will receive a 5% tax discount on the income from their business, capped at $1,000 per year.
The budget also includes a fringe benefits tax (FBT) exemption for SMEs with less than $2 million in annual turnover on work-related portable electronic devices as well as measures to provide funding to start-ups and entrepreneurs.
Under the 2015 budget, SMEs will also be able to change entity structure, for example, from a sole trader to a company, without being slapped with a capital gains tax. This means that the legal and tax advice costs with respect to starting a new business can immediately be deducted.
As for the possibility for exploitation, only businesses carrying on legitimate business operations will be able to take advantage of the tax breaks. This will be apparent through the company tax returns evidencing legitimate business income and expenses.
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