Balancing the books

What are the business implications of the 2017 Federal Budget? Peter Bembrick of HLB Mann Judd explains some key changes 

Instant write-off

The Government confirmed that the small business instant write-off for depreciating assets costing less than $20,000, which was due to expire on 30 June 2017, has been extended for another 12 months until 30 June 2018.

As the annual turnover threshold for this purpose has recently been increased from $2 million to $10 million, we expect that the number of businesses eligible for the instant asset write-off will increase dramatically, and include many that would not identify themselves as small businesses.

To complement this measure, the suspension of the ‘lock out’ rules for the simplified depreciation regime will also be extended by 12 months until 30 June 2018.

The ‘lock out’ rules prevent SMEs from re-entering the simplified depreciation regime for five years if they opt out.

Super and housing

Employers should be prepared for staff who take advantage of the ability to make salary sacrificed contributions into superannuation accounts, to be later withdrawn and put towards the deposit on their first home.

The nature of the contributions must be made clear to the superannuation fund as they will need to be accounted for separately from regular superannuation contributions, so reporting methods may need to be reviewed.

CGT concessions

One measure that had not been flagged before Budget Night, and on which there is so far very little detail, is a proposal to tighten up the small business Capital Gains Tax (CGT) concessions to deny eligibility for assets unrelated to the small business.

In the Budget there was a reference to taxpayers structuring their affairs to access the concessions for interests in larger businesses (in a way that the Government believes goes against the policy of the concessions). As the concessions are specifically made available to those selling shares or units in a business entity, we would hope that the proposed Budget amendments are relatively limited and will be targeted at arrangements that are clearly artificially structured to obtain unrealistic outcomes.

Nevertheless, we will be keeping a close eye on this proposal and whether CGT concessions could potentially apply to a business sale.

Company tax rate

The Government has committed to the remainder of the 10-year package to reduce company tax rate. This will see the corporate tax rate reduced for companies with a turnover less than $50 million.

In the 2016–2017 financial year, the reduced corporate tax rate of 27.5 percent will apply for businesses with an aggregated turnover of less than $10 million; $25 million turnover in 2017–2018; and $50 million turnover from 2018–2019.

As per the trajectory in the Budget, the corporate tax rate will also be further reduced in stages, starting from 1 July 2024, so that it will eventually fall to 25 percent by the 2026–2027 financial year for businesses with an aggregated turnover of less than $50 million.

In addition to the reduced company tax rate, the Enterprise Tax Plan Bill that was recently passed by Parliament includes measures to:

  • increase the small business entity aggregated turnover threshold to $10 million from 1 July 2016 – but the threshold for accessing the CGT small business concessions will remain at $2 million; and
  • increase the unincorporated small business tax discount from 5 percent to 16 percent over a 10-year period –- the threshold for accessing the discount will be $5 million (aggregated turnover).

The increase in the small business entity aggregated turnover threshold will enable a greater number of businesses to access concessions such as the simplified depreciation and trading stock rules and a two-year (instead of four-year) review period for amending assessments.

By Peter Bembrick, HLB Mann Judd

HLB Mann Judd is a leading accounting firm with offices around Australia and New Zealand

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