27/05/2015

The Government has announced a number of measures aimed to make it easier for small businesses to do business by encouraging investment and growth and by cutting back on red tape. But at least one senior economist has reservations.

Businesses with less than 15 employees have cause to rejoice after tax cuts, wage subsidies and CGT exemptions were announced for small businesses by the Government as part of the 2015 Budget. The Government has announced that it intends to make it easier for small businesses to access capital by removing obstacles which are currently faced by new start-ups from the very conception of their business.

New Businesses

The Government has announced that they will simplify and streamline the process of business registration which currently involves separate applications for applying for an ABN, registering your business name and registering your website domain name by replacing the current time-consuming and complex process with a website which requires a single online registration.

New businesses will also be able to deduct professional costs associated with starting up a business immediately rather than waiting five years to write off these expenses, which means there is no reason not to obtain good structuring advice right from the start. Ensuring you are well informed as to what structure will suit your business not only in its infancy, but throughout its lifetime as business needs change and develop, will prevent needing to make structural changes to your business in the future.

For those business owners who have already established their business and who find they need to update their legal structure, the Government has announced they will now be able to do so without incurring a CGT liability.

Tax Cuts

Australian businesses with an annual turnover of less than $2 million can take advantage of the reduced tax rate (reduced by 1.5 percentage points), while unincorporated businesses who fit under the same turnover cap can access a 5 per cent tax discount on the income tax payable on their business income (up to $1,000) each year.  

All small businesses will be able to claim immediate tax deductibility for any individual assets costing less than $20,000 that they purchase in the two year window from the 2015 Budget until June 30 2017. The threshold for these assets has been increased dramatically from only $1,000 to a whopping $20,000, however while this increase will be very beneficial for small business owners, it is not without risk. The question arises as to whether suppliers will rort the system by invoicing separate parts of an asset separately to bring each of those parts under the $20K limit even though the total price of the product costs over $20,000.

The Fringe Benefit Tax system will also be expanded to include portable electronic devices, such as mobile phones, laptops and tablets that are acquired for work-related purposes to allow for these devices to be paid for with pre-tax income tax dollars.   

Wage Subsidies

Small business owners will be encouraged to expand their staff with a wage subsidy pool of $1.2 billion set aside by the government to be accessed by employers who offer job seekers a permanent ongoing role. These wage subsidies can be accessed immediately once the employee starts their role, however the exact amount and timing of payments will be negotiated between employers and providers under the Jobactive scheme.

Wage subsidies have also been announced to help employers seeking to take on parents returning to the workforce and for employers who employ older workers.

With small businesses making up 96% of all Australian businesses in number, the new measures announced by the Government as part of the 2015 Budget are designed to encourage growth in both new and developing start-ups.

Is this the answer?

Not all economists are convinced that the tax cuts will be as effective as the Government is predicting. Saul Eslake, chief economist of Bank of America Merrill Lynch, has commented in the Sydney Morning Herald, saying that a smaller proportion of businesses than the Government expects will benefit from the tax cuts.

Mr Eslake says that the tax cuts are “unlikely to have any material impact in stimulating stronger economic growth… given that the benefits will likely be too small to induce businesses to do something which they would do otherwise”.

For more information on how the 2015 Budget announcements might affect your start-up, please contact Townsends Business and Corporate Lawyers on (02) 8296 6222.