What the Federal Budget means for small business retailers

By Scott Jago

Let’s be honest, a Federal Budget isn’t something we wait for with baited breath. Known typically for failed promises and cutbacks of all shapes and sizes, it’s often been something we would rather forget as a small business owner. So it was a pleasant surprise for small businesses that this year’s Federal Budget, delivered in early May, contained several tax breaks.

The Small Business Package, aimed at businesses with annual turnover of $2m or under, has been designed to encourage businesses to ‘have a go’ and spend more money. While no magic wand, it is certainly a step in the right direction.

Tax Cuts for Companies

The key change is a tax cut. Small business company tax will be reduced by 1.5% to 28.5% from 1 July 2015.

Unincorporated Small Business Tax Discount

Many small businesses are not incorporated, so those held in trusts, partnerships, or individual names will not benefit from the company tax rate cut. Instead, the Government has promised a 5% discount of the tax payable on business income received from an unincorporated small business entity. The discount is capped at $1,000 per individual and will be delivered as a tax offset.

For example, a family trust earns $80,000 of business income and distributes it all to Jack. Ignoring levies, Jack’s tax would be $17,534, but he would receive a tax offset of 5% of $17,534, or $876, meaning net tax payable of $16,658

“ This means that small business can purchase assets worth up to $20,000 and claim an upfront tax deduction rather than depreciate them.”

Re-Introduction of Small Business

Write-off Small Businesses have always had a ‘write-off’ for assets below a certain threshold. The previous Labour Government increased the threshold from $1,000 to $6,500. This was repealed with effect from 1 January 2014. However, it has now been increased again, but up to $20,000. This means that small business can purchase assets worth up to $20,000 and claim an upfront tax deduction rather than depreciate them. Assets exceeding $20,000 can be depreciated at 15% in the first year and 30% thereafter. These rules will apply from Budget night until 30 June 2017 (with some minor exceptions for capital works, primary production assets, horticultural plants and some pooled low value assets) .

Immediate Deductibility for Professional Expenses

Professional expenses associated with starting a new business such as costs of incorporating a company and legal and accounting advice are generally deemed capital costs. The current treatment is to write these costs off over five years. This treatment will change from 1 July 2015 to allow an immediate write-off for such expenses

Measures ‘encouraging’ start-ups

The process of registering a business will be streamlined into a single online portal ( with businesses able to then interact with the ATO and ASIC using just their ABN. The current business registration process is still a mess, despite attempts to fix it over recent years, so a change in this area is welcome.

On the downside ……

No GST change to Taxable Importations of under $1,000

Of good news for consumers (but not retailers!), the exemption that applies to purchases of imported goods valued at under $1,000 remains intact. The Government does not have an adequate collection mechanism where the costs of collection would outweigh the tax collected, so until that is changed, the exemption will most likely remain.

We see the current low interest rate environment, coupled with the write off for assets purchased under $20,000, as well as the immediate deduction for professional expenses being a possible catalyst for people looking to have a go in the surf retail sector. For existing retailers the company and unincorporated entity tax cut, coupled with the write off for assets purchased under $20,000 being a small but realistic step in the right direction to encourage business investment.

* Scott Jago is an accountant and busi9ness advisor at Allan Hall Business Advisors, a northern-beaches based accounting firm with a large number of surf retail clients.: (02) 9981 2300