- This is the biggest small business package in Australia’s history.
- At the heart of the package are tax cuts for all small businesses with annual turnover under $2 million.
- Small businesses will be able to immediately deduct each and every asset costing less than $20,000 that they buy between Budget night and end June 2017.
- Other small business measures will reduce red tape and encourage entrepreneurship.
- There are also measures to help employers take on unemployed job seekers and to help young disengaged youth become job ready.
How this will help Australian small businesses
Small business with annual turnover of less than $2 million
Sam owns and operates a small bakery, which he runs as a company in a country town in north Queensland. Sam purchases a new rack oven for $13,750 and a new proofing cabinet for $3,500 to replace his old, worn-out equipment.
Current law
Because these assets each exceed the current $1,000 threshold, they would be included in the accelerated depreciation ‘pool’. Of their combined $17,250 cost, only 15 per cent, or $2,588, would be depreciated in the first year. With a company tax rate of 30 per cent, this means that Sam’s company would only get $776 back on its tax in the first year.
New law
Under the new $20,000 threshold, Sam’s company will be able to claim an immediate deduction for both the new rack oven and the new proofing cabinet, giving an immediate deduction of $17,250. With the new small business company tax rate of 28.5 per cent from 1 July 2015, Sam’s company will get $4,916 back on its tax.
Benefit
Under the new $20,000 threshold for accelerated depreciation, Sam’s company will receive an additional cash flow benefit of $4,140.
| Current law | New law | Additional Benefit | |
|---|---|---|---|
| Depreciation deduction | $2,588 | $17,250 | +$14,662 |
| Cash flow benefit* | +$776 | +$4,916 | +$4,140 |
*cash flow benefit equals depreciation times the tax rate. Sam also benefits from the reduction in the tax rate for small companies, from 30 per cent under the current law to 28.5 per cent under the new law.
PLUS other taxation benefits
As a small business, Sam may also be eligible for a range of other taxation benefits including:
- small business concessions on capital gains tax
- simplified accounting and reporting arrangements
- immediate deduction for certain pre-paid business expenses
- option to account for GST on a cash basis
- option to elect for annual apportionment of some GST input credits
- option to pay GST by quarterly instalments
- PAYG instalments based on GDP-adjusted notional tax
