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May 2016 Budget – Impact on our Clients

With the arrival of the 2016 Budget, it’s time for the speculation to end and time to take stock of the incoming changes and how best to leverage them for optimised wealth generation and management.


Technology background from siver metal gears.Small Business = Big Winners

For the second year in a row, small businesses are the big winners in the budget. However, where last year’s budget focused on those businesses with a turnover up to $2 million annually, this year the changes concentrate on businesses turning over up to $10 million.

Here are two of the key efficiencies and opportunities to maximise the position of your business during the upcoming financial year:

Reducing Red-Tape

Changes to the small business entity turnover threshold will allow more businesses to be able to access existing income tax concessions such as simplified depreciation rules including the instant asset write-off threshold of $20,000. Company reporting requirements have also been relaxed, meaning more time is freed-up to focus on your core business rather than preparing statements for the ATO.

Simplifying Corporate Taxes

A new, lower company tax rate of 27.5% was announced for all incorporated businesses within the new turnover threshold. For those businesses that are not incorporated, they will see an increase in the tax discount available to them from the current 5% to 16%, which will be phased in over a 10-year period. Additionally, the onerous task of GST compliance will be less complex and more efficient, with a reduced emphasis on itemising every invoice line-by-line. It is hoped that this will slash the Australian annual average of 84 hours (or two weeks labour!) spent on compliance administration.

This is in line with the government’s initiative for Australia to transition from the mining investment boom to a stronger, more diversified new economy.


Innovation Today, Prosperity Tomorrow

In order to usher in what the government is touting as “the next age of economic prosperity in Australia”; emphasis is on removing the barriers that discourage financial risk-taking and in turn replacing them with avenues for developing businesses and optimising the country’s prospects for long-term economic strength.

Among the many and varied elements this agenda proposes, there are two primary areas of benefit you may be able to incorporate into your wealth creation strategy.

Tax

To encourage investment in technology and science, a tax-offset model has been adopted. Investors will be able to get a 20% tax offset which will ensure that the distribution of derived benefits are more evenly spread across income groups. In terms of a practical application, imagine you invest $200,000 and claim the offset. Your income tax would be reduced by $40,000. If you decide to sell your shares three years later, your initial $200,000 will be exempt from CGT. However, the Budget has proposed amendments, following consultation with stakeholders, that reduces the three-year period to a 12-month period.

Start-ups

For ESVCLP (Early Stage Venture Capital Limited Partnership) start-ups, a non-refundable 10% tax offset of the value of new capital invested during the income year will be made available. This is aimed at boosting the prospects of small businesses, making them more competitive worldwide, giving them the ability to attract greater levels of venture capital investment and bringing about direct benefits for those investing in start-ups.

Now is a great time to re-visit your tax strategy and identify any concessions that you may be able to implement to your advantage prior to the end of this financial year.


Better Late than Never

With the media focusing strongly on the Budget in an election year, it’s easy to lose sight of the current financial year. With nearly two months remaining until the end of the financial year, it’s not too late to make sure you’re taking advantage of the wide range of available concessions.

This is particularly true for small businesses, as a strong finish to this financial year is the perfect launch pad into what will certainly be an exciting year for operators with an annual turnover up to $10 million.

On the lead up to the end of the financial year, it’s important to consider the following:

  • Have you claimed all individual assets purchased?

There are instant write-offs for assets costing less than $20,000 each and immediate deduction of professional expenses for start-ups – money that better sitting with your business than with the ATO.

  • What are the tax implications of your structure?

If unincorporated, a tax discount of 5% up to $1,000 applies. For all other businesses with an annual turnover of less than $2 million, there is a 1.5% tax cut to 28.5%.

  • What about FBT?

While a minefield, it’s important to note that there are ways to utilise FBT to improve your position. For example, there is no FBT for providing multiple electronic devices to employees.

  • Have you restructured?

If so, there is no income tax liability for asset roll-overs. This could be the difference between celebrating the end of the financial year and lamenting lost finances.

  • Are you a producer?

Primary producers are afforded accelerated depreciation, which can be a handy little win if applied wisely.


Let us Help

With all the changes announced in this year’s Budget, it’s easy to get overwhelmed. We’re here to help take the stress out of the new financial year.

In order to streamline the raft of information and identify how your business – or you personally – will be affected, please contact us today on (02) 9997 4647.

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Chetan Sharma


Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407