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2015 Federal Budget







On 15th May, the Federal Government Budget announced many incentives for Small businesses and also, several changes required for compliance that will come into effect 1 July 2015. 


Local Tax Accountant Gowing & Co have prepared a summary of how your business can take advantage of recently approved small business incentives from the May 2015 Federal Government budget, and what changes to compliance for the 2016 financial year you need to be aware of.


1. Changes effective Budget Night - 7.30pm 12th of May

1.1 Expanding accelerated depreciation for small business - immediate write-off and small business pool

The government will significantly expand accelerated depreciation for small businesses. It will do this by allowing small businesses with aggregate annual turnover of less than $2 million, to immediately claim a tax deduction against their assessable income for assets (one or multiple items) they start to use (or install ready for use) provided the asset costs less than $20,000 (currently, an immediate write-off is generally available for assets costing less than $1,000). This will apply for potentially multiple assets (each costing less than $20,000) acquired between 7.30pm 12 May 2015 and 30 June 2017(ie covering 3 financial year-ends).Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the your  small  business simplified depreciation pool and depreciated at  15% in the first income year and  30%  each income  year  thereafter.  The pool can also be immediately deducted if/when the pool balance is less than $20,000 over this period (including existing pools).

2. Changes effective 1 July 2015 (i.e, 2016 income tax year!)

2.1 Tax cuts for small business - 1.5% tax cut for small companies and 5% discount on income tax payable for unincorporated small business activity

From the 2016 income year, the government will deliver a tax cut to all small businesses:(a)     Reduction in company  tax  rate - 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.(b)      5% discount on tax payable for other taxpayers - 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.

2.2 Claiming car expense deductions – modernising the existing car expense claim methods

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 (e.g., by the individual) using one of four methods. (i.e., the 'cents per km method', the '12% of original value method', the 'one-third of actual expenses method' or the 'log book method').
From the 2016 income year, the government will modernise the methods of calculating work-related car expense deductions, as follows:
  • The '12 per cent of original value method' and the 'one-third of actual expenses method' (which are used by less than 2% of those who claim work-related car expenses) will be removed.
  • The 'cents per kilometre method' 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). The Commissioner will be responsible for updating the rate in following years.

2.3 Immediate deduction for professional expenses on commencing a new business

Currently, some professional costs associated with commencing a new business (eg our accounting and incorporation fees, trust deed settlement costs etc) are deducted over only a five-year period.From 1 July 2015, (that's next tax year) 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. Changes effective 1 July 2016 (i.e., 2017 income  tax  year!)

2.4 CGT roll-over relief for changes to entity structure

CGT roll-over relief is currently available for individuals who incorporate, but other entity type changes have the potential to trigger a CGT liability. From 1 July 2016, the government will allow small businesses with an aggregated annual 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 established.

2.5         Accelerated depreciation for primary producers

Currently, the effective life for fences is up to 30 years, water facilities is three years and fodder storage assets is up to 50 years. For income years commencing on or after 1 July 2016 (i.e., from the 2017 income year), the government will allow all primary producers to:
  • immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills; and
  • depreciate all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed over three years.

3. FBT announcements

3.1 Relaxing the FBT exemption for work-related electronic devices

Currently, an FBT exemption of the FBT Act applies in respect of eligible work-related items (e.g., a portable electronic device, an item of computer software, and a tool of trade). In respect of a portable electronic device (e.g., a laptop computer), the FBT exemption generally does not apply to multiple items provided by an employer to an employee in the one FBT year, where those multiple items have substantially identical functions.From 1 April 2016, the government will allow an FBT exemption for small businesses (with an aggregated annual turnover of less than $2 million) that provide employees with more than one qualifying work-related portable electronic device, even where the items have substantially similar functions. It appears that, consistent with the current rules, the FBT exemption will only apply if the relevant item is primarily for use in the employee's employment.Removing the restriction that a tax exemption is only provided for one work-related portable electronic device of each type will remove confusion where there is a function overlap between different products (such as between a tablet and a laptop).

4. Other Budget announcements

4.1 GST-related measures announced by the government

The government has announced various GST-related measures, broadly as follows:

(a) GST-free treatment for supplies of   going   concerns    and   farmland (farmland exemption). The government will not proceed with the previously announced but unenacted measure to replace the current GST-free treatment for supplies of going concerns and farmland with a reverse charge mechanism. The original measure was intended to reduce the compliance burden for taxpayers. It would have also had cash flow timing impacts for the parties. However, during design of the implementation of this measure, it became apparent that the measure would have resulted in other adverse consequences for taxpayers.

(b) GST compliance - The government will provide $265.5 million to the Australian Taxation Office over three years from 2017 to continue a range of activities to promote GST compliance. (Watch out!!).

Disclaimer: - These notes are in summary form and are prepared exclusively for clients of the firm and others upon request, to alert them to taxation and other developments. They are not comprehensive and therefore, especially recognizing the passage of the Budget Bills through Parliament, should not be relied upon in isolation as a substitute for detailed advice or as a basis for formulating business decisions.

2016 BUSINESS AWARDS Entries Close: 24th March 2017

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