On 12th May 2015 the Federal Budget was delivered. Although there is much water to pass under the bridge until any legislation is passed, there are a number of taxation proposals that if legislated, will benefit you over the coming years.
That said, the majority of the proposed changes will only affect those businesses whose aggregated turnover is less than $2m.
Be careful of the definition of aggregated turnover if you have an interest in more than one pharmacy or business. In very simple terms if you have an interest of at least 40% in one or more pharmacies or business, you must add the combined turnover of those businesses in determining whether your aggregated turnover is less than $2m and therefore eligible for these changes. Note that there are special rules for determining when the $2m turnover test is met and the year in which you can claim the concessional tax deductions.
- From 1st July 2016, small businesses with an aggregated turnover of less than $2m will be able to change their trading structure without attracting a capital gains tax liability providing the same owners are maintained. Action: Possible deferral of trading structure change until 1st July 2016
- From 12th May 2015 to 30th June 2017 small business entities with an annual turnover of under $2m will be able to immediately claim a tax deduction for assets costing less than $20000 GST exclusive. This means that an asset costing $22000 or less GST inclusive can be claimed as a 100% tax deduction in the year of purchase. This threshold was previously $1000 GST exclusive.
Equipment, vehicles and other capital expenditure items are included. Note that a vehicle which is not 100% business use will not be able to be totally written off under this proposal. It will be the business proportion that will be eligible.
The balance of any small business asset pools under $20000 can also be written off entirely.
Actions:
- Asset purchase plans need to consider this window of opportunity to deduct asset
purchases up to $20000 – with the 30th June 2017 cut off date being significant! - Plan for ensuring your business income is below the $2m threshold if you are at or around that $2m turnover figure near the end of the 2015, 2016 or 2017 financial year
- From 1st July 2015, all small businesses with an aggregated turnover of under $2m will receive a 1.5% tax cut. As a result:
– Companies with an aggregated turnover of less than $2m will have their tax rate
reduced from 30% to 28.5% - Companies with an aggregated turnover of more than $2m will continue to have a
30% tax rate - The current maximum franking credit rate for franked dividends paid for all companies will continue at 30%
- Individual taxpayers with business income from an unincorporated business eg sole trader, partnership or trust with an aggregated annual turnover of less than $2m will be entitled to a 5% tax discount on income tax payable on business income from an unincorporated small business entity, capped at $1000 per individual for each income year.
Actions:
- Plan for ensuring your business income is below the $2m threshold if you are at or around that $2 turnover figure near the end of the 2015 or later financial year
- Defer income from/prepay expenses in the 2015 financial year so that a greater portion of profits are taxed at the lower rate in 2015/16. Note: Be aware of your income and tax brackets as this may result in getting the 1.5% discount in one year but being in a higher tax bracket next year
- Potential use of Trusts to distribute to multiple beneficiaries, all accessing the 1.5% discount capped at $1000 each
Other
- From 1st July 2016 there will only be two options for claiming a work related vehicle –
66 cents per km up to a cap of 5000km or log book.
The 1/3 of expenses or 12% cost method will cease to be claimable from that date. This does not apply to company or trust owned vehicles. Action: To maximise work related vehicle expenses, it may be advantageous to maintain a vehicle log book. - From 1st July 2015, a start up business will be able to immediately deduct their expenditure on professional expenses associated with establishing a company, trust or partnership. Eligible expenses will include fees for professional, accounting and legal advice. Prior to this change, these expenses were deducted over 5 years. Action: None
In conclusion it will be important to bear in mind these changes in your decision making process.
That said, tax is only one part of the commercial decision – there are many other factors to consider as well in making the correct decision. I would be happy to answer any questions that you may have in respect of these changes. Further, you should seek advice from your accountant to determine your eligibility for any of these claims in your particular circumstances.