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The IPA has welcomed the opportunities presented for small business by this year’s federal budget, and noted some key tax measures that accountants should be aware of for themselves and their clients.
Following the release of the federal budget in Canberra yesterday evening, IPA chief executive Andrew Conway told Public Accountant that, overall, the 2017 budget provides confidence to current and budding small business owners.
“You’ve got this opportunity as a small business owner to go out tomorrow to employ, invest and grow,” Mr Conway said.
Small business measures
This year, there were no new taxes for small business, which is “always a good thing to see,” he said.
Another measure that was put forward, which the IPA is advocating for, is a $300 million package of funding to support deregulation for small businesses at both state and local government levels.
“We’ve acknowledged from the start that small business regulation is not solely the domain of the Commonwealth, but for all levels of government to address, and a $300 million injection into deregulation of small business at all levels of government is a good thing,” Mr Conway said.
“For example, the processes involved in obtaining permits, the processes of moving goods and freight between states [is complex.] At the moment, there’s different hazardous waste regulations between states and territories in Australia, and when a truckie drives over a border, they have to comply with different rules and regulations. Those things cost real money to small business owners.”
After a long stretch of advocacy, the IPA has also welcomed the government’s decision to extend the $20,000 instant asset write-off for small businesses for the next 12 months.
“The IPA has long advocated for the write-off initiative and we are relieved that common sense has prevailed to extend the time period,” Mr Conway said.
“The increase in the accelerated depreciation write-off threshold to $20,000 has been of great assistance to small business cash flow.
“A higher instant asset write-off should be a permanent feature of our tax system going forward. The Henry Review into Australia’s tax system recommended that a higher threshold should apply.”
This concession will also be available to a bigger pool of businesses, with the government changing the definition of small business from a turnover of $2 million to $10 million effective from 1 July 2016.
“So the bag of goodies will be available to more businesses,” said the IPA’s Tony Greco.
Those entities will have access to a suite of tax concessions which also include a lower corporate tax rate.
“We are very encouraged by moving the tax concessions up the food chain to those larger entities – they are the ones who employ people,” Mr Greco said.
What was off the table?
While the 2017 federal budget was supportive of the role and growth of small business in Australia, Mr Conway and the Institute continue to push for key measures that were not addressed by the government yesterday.
In particular, the IPA supports the recommendation of the Australian Small Business and Family Enterprise Ombudsman to legislate payment times to small business.
“[Small business’] cash flow is often held to ransom by the failure of big businesses to pay small business invoices in a timely manner. The commercial world is still lagging behind government agencies which are required to pay within 30 days or else interest must be paid,” Mr Conway said.
“Healthy cash flow provides ongoing incentive to reinvest in their businesses, which extends the economic benefit of growth and the capacity to employ.”
The IPA is also “not alone” in pushing for meaningful national tax reform, which was again not part of this year’s federal budget, Mr Conway said.
The ongoing avoidance of significant tax reform in Australia is a “handbrake” on continued economic growth.
“We are still craving that reform as a nation,” Mr Conway said.
Key tax measures and levies
By its absence from the federal budget last night, it is clear the temporary deficit levy is ending on 1 July.
This is as per the plan from 2014, however there has been ongoing speculation that it may be extended in an effort to continue the government’s ‘budget repair’ mission.
“If you are a high-income earner. you can immediately start thinking about ways to put revenue into the next financial year,” Mr Greco said.
“Two per cent is not huge, but if you’ve got a large capital gain and you’ve got control of timing [it might be worth] that push into the new financial year.”
Further, from 1 July 2019, the Medicare levy will increase by half a percentage point from 2 to 2.5 per cent of taxable income to help fund the National Disability Insurance Scheme (NDIS.)
In a somewhat surprising move, from 1 July 2017, the government plans to “improve the integrity of negative gearing” by disallowing deductions for travel expenses.
“This is one change that is not going to please a lot of people,” Mr Greco said.
“A lot of investors have properties a long distance away from their home, and incur travel expenses when they visit their residential investment.
“There will be an outright ban on travel expenses, that’s an absolute loss.”
For properties bought after May 9 2017, the government will also limit plant and equipment depreciation deductions to only those expenses directly incurred by investors.
While these measures won’t be happily met by property investors, Mr Greco said that “in the grand scheme of things” any changes involving negative gearing could have been significantly more dramatic, given the government’s housing affordability agenda.
“So, probably, a lot of investors are also relieved that the changes haven’t gone further,” he said.
In the lead-up to this year’s federal budget, there was intense speculation that the government was going to allow early access to superannuation for first home buyers looking to fund a deposit.
Last night, Treasurer Scott Morrison announced that super would be on the table for first home buyers looking to boost their initial deposit, but superannuation guarantee payments would remain untouched.
The government introduced a measure that will allow individuals from 1 July 2017 to make voluntary contributions of up to $15,000 per year and $30,000 in total to their superannuation account to purchase a first home.
The government said these contributions, which are taxed at 15 per cent along with deemed earnings, can be withdrawn for a deposit. Withdrawals can be made from 1 July 2018 and will be taxed at marginal tax rates with a 30 per cent offset.
The government also introduced a measure that will enable people aged 65 and over to be able to make non-concessional (post-tax) contributions into their superannuation of up to $300,000 from the proceeds of selling their home.
The current contribution rules for people aged 65 and older and the restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new downsizing cap.
While, arguably, these measures may not address the fundamental economic dynamics which affect housing affordability, they do serve to get Australians more actively involved in their superannuation, particularly if it can facilitate one of the most significant and emotional investments that an Australian taxpayer can make – a home.