How will the Federal budget impact your small business?

On Tuesday night in Canberra, the Treasurer, Mr Scott Morrison, handed down his 2017 Budget. In a speech heavy with spending announcements for big road, rail and power infrastructure projects, there was really only one major small business tax announcement; thankfully, it was a big one and one that all small businesses will welcome. 

Small business $20,000 instant asset write-off to be extended

When it was first announced, the $20,000 instant asset write-off was scheduled to end on 30 June 2017. The scheme – which enables small businesses to immediately deduct the cost of capital items purchased for use in their business where the cost of each item is less than $20,000 – has been extremely popular and the Treasurer has been under pressure for some time to extend the deadline. It was gratifying that last night, he did just that.
Instead of ending on 30 June 2017, the scheme has been extended by one year and will now expire on 30 June 2018, after which the threshold will revert to its former level of $1,000. Although the extension was less generous than many had hoped, even a one year extension will give all small businesses the chance to utilise a valuable tax break, which our own research shows has not been widely understood or used to its maximum extent so far.
Remember too that because of a recent change in the definition of what constitutes a small business, tens of thousands of additional businesses will now be able to take advantage of the tax break in its final year. Previously only businesses with an aggregate turnover of less than $2 million could benefit; now businesses with an aggregate turnover of less than $10 million qualify.
Among the items which could potentially qualify are:

• Technology such as computers, laptops, phones, tablets and printers

• Office furniture and fittings

• Motor vehicles

• Tools of your trade

If your business purchases assets valued at $20,000 or more (which are therefore unable to be immediately deducted), these assets can continue to be placed into the general small business pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools). 


Tax rates for small businesses

The Treasurer reiterated the recently legislated tax cuts for small companies. Through until 2024, the small companies rate of tax will be 27.5 per cent. This rate has applied since 1 July 2016 to companies with an aggregated turnover of less than $10 million; for the 2017-18 year, this rate will be extended to cover companies with an aggregated turnover of less than $25 million and for the 2018-19 year, the turnover threshold will increase again to $50 million.
Unincorporated businesses with an annual turnover of up to $5 million receive an increase in the unincorporated tax discount, taking the rate to eight per cent (but still set at a maximum of $1,000). 


Other changes for small businesses

There has been some minor tinkering with the small business CGT concessions to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.
There are four concessions available to small businesses to eliminate, reduce and/or provide a roll-over for capital gains made on business assets:

• the 15-year exemption

• the 50 per cent reduction

• the retirement exemption

• replacement asset roll-over relief

The government is concerned that that some taxpayers are able to access these concessions for assets which are unrelated to their small business, e.g. through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.
The Treasurer has also introduced a new levy on businesses that employ foreign workers on certain skilled visas. From March 2018, businesses with a turnover of less than $10million per year will be required to make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa. 

Personal tax for business owners

Tax rates for individuals remain essentially the same next year, the only significant difference being that the 2 per cent deficit reduction levy (which has been imposed on individuals with taxable incomes over $180,000) will expire on 30 June 2017 and is not to be extended.
Looking further into the future, the Medicare levy will increase by 0.5 per cent to 2.5 per cent from 1 July 2019 (currently two per cent) in order to fund the National Disability Insurance Scheme (NDIS).

Mark Chapman

Mark Chapman is Director of Tax Communications for H&R Block Australia. He has been a tax adviser specialising in advice for individuals and small businesses for over 20 years, in both the UK and Australia. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from University of New South Wales. To find out more about how H&R Block can assist your small business, visit