The budget gave small business something to smile about, but big business is waiting for more.
Are you reading this on a new laptop or tablet? You may already be reaping the benefits of a Budget which promised something special for Australian small businesses and delivered in spades.
Council of Small Business Chief Executive Peter Strong was so excited about the May Budget he had to check himself.
“I have been effusive in my praise of the budget in various media, and this worried me,”1 he wrote in a newspaper opinion piece after the budget was handed down. “But I checked with our members and they agreed with the effusiveness. One even said that I was understating the fact.”
It’s not often you get more than you’ve asked for but that is what this budget delivered for small business. One of the most talked about items was the $20,000 instant asset write-off for businesses with a turnover under $2 million – about 96 percent of all Australian businesses.
From Budget night these businesses could immediately write off against their taxable income purchases of new and secondhand business assets valued at up to $20,000 each. This is a massive bump up from the previous limit of $1000, but it will revert back to this level on July 1, 2017.
“It will provide motivation to people who wish to start a business, those who want to expand their business, and those who want to replace old machinery and stock. This, in turn, will mean an increase in employment opportunities,” Mr Strong said.
The tax rate for business with turnover under the magic $2 million mark has also been cut 1.5 per cent to 28.5 per cent from the start of this financial year, with a 5 percent discount for unincorporated businesses, capped at $1000.
There was some criticism of the cuts from industry bodies representing start-ups, which said many fledgeling tech businesses with turnovers under $2 million were not yet in profit and therefore not in a position to benefit. 2
But there were other sweeteners for start-ups, with changes to allow them to immediately write-off legal and tax advice involved in establishment, which previously had to be depreciated over five years. The government also delivered on a promise to reform employee share schemes to provide more flexibility in salary packages. Eligible start-ups will be able to offer shares and options at a small discount to employees, with tax-deferred and no tax on the discount.
In other changes to cut red tape, the Government is abolishing fringe benefits on all portable devices used by small businesses from April 1 next year. Previously, if two devices were used for a similar purpose – such as a laptop and tablet – only one could be exempted from fringe benefits tax. The Government has also proposed to allow small businesses to change legal structure without attracting a capital gains tax liability at that point. This change is proposed for the 2016/17 income year.
Australian Chamber of Commerce and Industry (ACCI) Chief Executive Kate Carnell said the Budget was a much-needed ‘turbocharge’ for the small business sector, which had been doing it tough for the past 18 months.
About two weeks after the budget speech the ACCI released its March quarter small business survey which showed the sixth consecutive quarter of declining forecasts from business owners and a gloomy outlook for the economy in general.
“The Budget initiatives, combined with record low-interest rates, should help small businesses rediscover their mojo, which the survey shows has gone missing in recent months,” Ms Carnell said. She said she looked forward to the post-budget June quarter results (due in August).
Australian Industry (Ai) Group was more muted in its praise, with Chief Executive Innes Willox joining others in voicing disappointment there was no tax cut for big business, which will continue to pay 30 percent, while small businesses have had a cut to 28.5 percent. The Government has said corporate tax rates will be considered as part of the Tax White Paper process now underway. An options paper is due in the second half of this year before a final White Paper is released prior to next year’s election.
Mr Willox praised moves to make childcare more flexible and affordable, but sounded a warning about the Government’s controversial ban on maternity leave “double dipping”.
Preventing women from accessing both employer and Government schemes would discourage businesses funding their own schemes and wipe out any advantage they may gain in attracting and retaining staff by offering generous maternity packages.
1 Strong, Peter; Hockey’s ‘small-business budget’ perfect for the sector, The Australian, May 14, 2015.
2 9 things start-ups should know about the 2015 Federal Budget, Business Review Weekly, May 13, 2015.