Cash flow is the lifeblood of any business. The highest profile measures in the recent Federal Budget focus on providing cash flow relief while stimulating consumption. But there are other ways that small businesses can take advantage of the budget, such as the ability to ensure you have the correct structure in place.
1. CASH FLOW MEASURES
There are some key budget measures that aim to increase cash flow for small businesses. Importantly, to maximise these opportunities, you should get expert advice to determine the most effective way to utilise the additional cash flow.
The obvious benefit of the recent budget for small businesses are the tax cuts. From the 2015–16 income year, all small businesses (companies with an aggregated annual turnover of less than $2 million) will receive a 1.5% tax cut (the tax rate will reduce from 30% to 28.5%). The tax rate for companies with an aggregated annual turnover of $2 million or above will stay at 30%.
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, to be delivered as a tax offset and capped at $1,000 per individual for each income year.
Beware the adage ‘The more we earn, the more we spend’; don’t just fritter away this tax cut – make a plan for how you will utilise it for the benefit of your business (or personal finances). Always speak to an expert before making important financial decisions, to ensure you maximise your opportunities in line with your long term financial strategy.
Tax deduction for small business asset purchases up to $20k
This high profile budget measure enables small businesses to bring forward deductions on asset purchases up to $20k (rather than write them down over several years).
The immediate asset write-off threshold will be increased from $1,000 to $20,000 only from 7.30 pm on 12 May 2015 until 30 June 2017. If you purchase before 30 June 2015, you’ll get 30 cents back in tax. Purchase after 1 July 2015 and before 30 June 2017 and you’ll get 28.5 cents back
Importantly, you should never undertake expenditure just to receive a tax benefit – always ensure there is a commercial benefit first and foremost.
A proactive accountant should review this with you as part of the tax planning process. After reviewing your position for the coming year, you may decide to bring forward an asset purchase that was planned for later in the year.
- Never take on a debt just to chase a tax deduction – only use it for legitimate purchases that will help your business grow
- If your business is expected to make a profit next year or the year after, then you may be better off waiting to use the deduction in those tax years
- Assets that cost $20,000 or more can continue to be placed in the small business simplified depreciation pool.
- This is a limited time offer running from budget night until 30 June 2017
- This is a tax deduction, not a grant or allowance. If your business is not making a profit, you won’t be able to benefit from a tax deduction
- Be sure you meet the ATO’s definition of a ‘small business’: an individual, partnership, trust or company with an aggregated annual turnover of less than $2 million
- If you’re not registered for GST, the $20k includes GST – this may push you over the $20k threshold
- Under $20k does not include GST
- Private v personal use – if the asset is partly used for personal purposes, it can be added to the GST component, which can push you over the $20k threshold
FBT exemption for electronic devices
From 1 April 2016, the Government will give small businesses an FBT exemption to buy as many laptops, tablets and other portable electronic devices as required for business use.
2. GET THE RIGHT STRUCTURE IN PLACE
SMEs can now take advantage of several measures that mitigate the costs associated with changing structure (or to cover costs for start ups) – meaning it’s the perfect time to get structure advice to ensure you’re set up correctly. This is important, as your structure needs can change over time, so need to be reviewed periodically.
Structure – not just for sporting teams…
There are several reasons why having the right structure in place is critical for your business:
- Tax benefits: to ensure you pay no more than the tax you are legally required
- Asset protection: to minimise the impact of litigation or business performance on your family’s financial position
- Flexibility: to distribute income to family members, or to have greater control over how you buy and sell assets
- Access to capital: eg Division 7A loan issues
Tax law changes over the years mean that your existing structure may not be the most effective setup for you now (for example, the advantages of Discretionary Trusts have altered over time). The changes in this budget make it well worth your while to review your current structure so you can move to a more suitable arrangement if needed.
Immediate deduction for professional expenses
From the 2015–16 income year, start-up businesses will be entitled to immediately deduct their expenditure on professional expenses associated with establishing a company, trust or partnership.
Eligible expenses include accounting, legal and business advice fees relating to determining the right structure, registering your entity, and developing buy/sell agreements.
Capital Gains Tax (CGT) roll-over for small business restructures
From 1 July 2016, small businesses can change their legal structure without attracting a CGT liability, enabling you to change to a more suitable legal structure as your business becomes more established.
This is particularly attractive to help you separate the business from business assets, thus helping to better protect those assets – and giving you peace of mind.
As a broad example, a business with goodwill worth $500k could potentially save up to $70k in CGT.
Calculation of work-related car expenses
The number of calculation methods has reduced from four to two: ‘cents per km’ and ‘log book’. The ‘Cents per km’ method will reduce from 76 to 66 cents, and will be simplified to remove engine size as a factor. Speak to your accountant or business adviser to determine if you need to make a change to your car expense calculations.
Employee share schemes
If you offer shares to employees, there are changes that you need to be aware of (starting 1 July 2015). It is worth reviewing your existing or potential employee share schemes, as they are an important business succession and retention tool for key staff.
Accelerated depreciation for primary producers
From 1 July 2016, primary producers can immediately deduct capital expenditure on fencing and water facilities (dams etc), and depreciate capital expenditure on fodder storage (eg silos and tanks) over 3 years.
R&D tax offset $100 million expenditure cap
Larger businesses conducting eligible research and development (R&D) expenditure will have a cap of $100 million on the amount they can claim as a tax offset at a concessional rate under the R&D tax incentive. Expenditure beyond the $100 million cap will receive a lower offset at the company tax rate.
There are some significant budget measures designed to assist established and start-up small businesses – mostly pertaining to improving cash flow and ensuring you have the correct business structure in place. Every business’ situation is different – so speak to your business advisor to determine how you can best take advantage of these opportunities.