The 2015 Budget is over and the dust has settled. Small Business – businesses with annual revenue less than $2 million – was a big focus. If you run a Small Business, here’s what it means for you:
- Your corporate tax rate is reduced from next year (and for the foreseeable future) by 1.5% from 30.0% to 28.5% and the franking credit remains at 30.0% – so this is a “real” tax break.
- You can expense all individual asset purchases up to $20,000 instead of having to depreciate them over their useful lives – a big increase from the previous $1,000 threshold.
- You can now expense startup formation and establishment costs (e.g. legal, accounting, website development, etc.) in your first year of business, instead of amortising them over 5 years.
- These tax cuts are extended to non-incorporated businesses (e.g. sole traders and contractors) who pay income tax rather than corporate tax.
In addition, the Australian Government announced that they will streamline the establishment process for new businesses by consolidating the registration process for business names, ABNs, GST, etc. But we’ll have to wait until next year to see what this looks like.
Here are answers to some of the FAQs about the new changes:
Do these tax breaks apply to non-registered businesses?
You do not have to be a “registered” business to be able to use the tax deductions. If you can show you have “ongoing business activity” by lodging a BAS, for example, you are eligible for the breaks. If you are not actively trading, you are not eligible.
What assets can I purchase?
All business assets are eligible for the accelerated depreciation. This includes tools, furniture, telephones, machinery, printers and computers. And the deduction applies to new and second hand assets. The assets just need to be installed and ready for use before 30 June 2017. And the $20,000 limit is for individual assets – not the total. So your total deduction could be for more than $20,000.
Are legal and professional fees included in formation costs?
Yes! Startup formation and establishment costs include any professional advice or services you receive from lawyers, accountants, tax advisers or consultants. In addition, any incorporation fees and legal templates for your website are included. Plus the costs of registering your business name, logo and tagline with IP Australia. Previously, these costs would have had to be amortised over your first 5 years in business.
What other startup costs are tax deductible?
Everything you need to start your business is tax deductible – what has changed is being able to “expense” these in your first year, instead of amortising them over 5 years. These days, one of the largest startup costs is setting up your website. So make sure you include invoices for all website design, hosting, templates, shopping cart software, etc.
So there we go – some good news for Australian small business.