Taking care of business

Another financial year has come and gone and this year’s federal Budget featured some significant breaks for small business, including tax cuts and red-tape reduction. Don’t wait till next year to investigate what it means for your business and how you can reap the rewards.

For some, the start of the new financial year means getting back to business and putting thoughts of taxation, deductions and audits on the backburner till next year. As tempting as that may be, there are enough incentives in the pipeline to make it worthwhile staying focused on finances and planning for a little while longer.

From little things, big things grow

It seems the government learned a valuable lesson from the rather cool reception of last year’s effort and made the Jobs and Small Business package the key selling point for the 2015-16 federal Budget. The heart of the message was the introduction of measures designed to facilitate growth in job numbers and to support small business, which the current government views as the ‘engine room’ of Australia’s economy. From little things, big things grow, after all.

Despite the constant doom and gloom being reported in the media, we are living in a time of record low interest rates, decreasing fuel and electricity prices, and a lower exchange rate, all of which signal a favourable time to invest in growth and jobs. To encourage that development, businesses with an annual turnover of less than $2 million have been treated to tax cuts effective 1 July 2015: a 1.5% reduction for companies, which brings the new company tax rate down to 28.5%, and a 5% reduction for non-companies, capped at $1000 per annum.

Perhaps the most publicised incentive is the change to asset deductions, which initially had people dreaming of new flatscreens, so further explanation was warranted. Any eligible asset valued below $20,000 that is purchased between 7.30 pm on 12 May 2015 and 30 June 2017 will qualify for immediate depreciation in the financial year in which the asset is first used or installed. The key word in that sentence is “eligible”. Although it’s only a temporary measure, this represents a significant change from the previous threshold of $1000. Of course, there are a couple of exclusions to the new depreciation rules, including in-house software allocated to a software development pool.

On the fringe

Fringe benefit tax (FBT) has been the bugbear of employers and employees alike since it was introduced in the mid-1980s. It was effectively seen as the death knell for many work-related perks, including long client lunches and other types of entertainment, and is a headache to manage in terms of its application. The tentacles of FBT reach beyond entertainment and the process of delineation has become increasingly convoluted, particularly in the realm of issuing portable electronic devices to employees.

Under current legislation, an employer who provides an employee with a laptop and a tablet for work-related use may only claim an FBT exemption on one device, because both devices have substantially identical functions. “Functionality” is the definer in terms of tax application and even the Australian Tax Office (ATO) admits this is confusing. The good news is that (provided legislation passes) from 1 April 2016 businesses with a turnover of less than $2m will be entitled to an exemption on multiple items, even where the function of those devices is similar. Sanity prevails.

Gain in one hand...

Capital Gains Tax (CGT) is on the radar as well. Under the current system, changes to a business structure will generally trigger a CGT liability and the only existing exemption is when an individual incorporates.

Moving forward, changes to the legal structure of a company (provided turnover is less than $2m) will not incur CGT. This is being referred to as “rollover relief” and, importantly, it represents a recognition that small businesses may initially choose a legal structure that does not suit the needs of an entity as it grows. Removing the tax burden associated with rectifying that problem is an encouragement to business continuance and subsequent investment.

...lose in the other

Changes to CGT won’t come in to effect till the 2016-17 financial year, so don’t plan any major business structure remodelling between now and then, unless you particularly relish paying extra taxes.

Hire, hire, hire

The first half of the year has been a bit of a rollercoaster for national employment figures, but the government is encouraging small business to increase employee numbers via a range of programs. From November 2015, employers will have access to more flexible payment arrangements under the Restart, Youth and Long Term Unemployed wage subsidies and, starting January next year, government support for employers hiring older workers and unemployed job seekers will also increase.

Supervise super

This one has been in play for a while, but may have slipped through the cracks for some employers. If you pay your contractors under a contract that is wholly or principally for labour, you must pay superannuation contributions on their behalf, even if that contractor quotes an Australian business number (ABN).

Generally, a contract is principally for labour if more than half of the value of the contract is for the person’s labour, which may include physical, mental or artistic labour. For the purposes of the superannuation guarantee scheme, the contractors in this scenario are your employees. It does not include contractors hired through a third party, such as labour-hire companies.

If in doubt, refer to the ATO website, which features tools and calculators to help you determine your legal responsibility.

Nothing is set in stone

Of course, the problem with any budget-related initiatives and changes in legislation is that they are rarely set in stone. Australian politics has been fairly volatile in the last decade or so. Since 2007, we’ve moved from a Coalition government to Labor, through a leadership change and subsequent minority (Labor) government, followed by another leadership change and then a return to the Coalition. Along the way, various policies and departments have been created, undone and reformed.

Based on historical evidence, it’s entirely conceivable that some (or all) of the promised incentives on the table may not live to see the light of day, depending on which way the political wind blows. Even so, it never hurts to be aware and ready to take advantage when the day arrives, so do your homework, seek professional advice for your specific situation and don’t leave all the accounting till the end of the financial year.

Image credit: ©nito/Dollar Photo Club