2016 Election AheadSo what did you make of it? Even Treasurer Scott Morrison said it wasn’t even really a budget – it was a ten year ‘plan’. But you’d have to question the value of putting together a ten year plan when we have a three year electoral cycle and a double dissolution is just around the corner.

All the usual pre-budget hype this year had the undercurrent of the imminent election announcement so Malcolm Turnbull and Scott Morrison had to tread a fine line between delivering a budget which would be positively received and act as a launch pad for their election campaign, and not being seen to be making expensive promises that they will be unable to deliver on.

With all the ‘announcements’ and subsequent u-turns on policies such as tax reform and negative gearing in the last few months, it was always going to be an ‘interesting’ federal budget this year.

That said, I’m sure that most of us in the SME community will have been heartened to see the extension of the initiatives introduced in last year’s budget designed to support and stimulate small and medium-sized businesses.

With business and consumer confidence back on the rise and interest rates at a record low, we could be in for an exciting ride!

The key stand outs for me include:

Increase of the small business entity turnover threshold from $2m to $10m

I think this is one of the most exciting changes to emerge from this year’s budget. Essentially changing the threshold will allow an additional 90,000 to 100,000 businesses to access a range of business concessions, many of which were introduced in last year’s budget.

One such concession is the $20,000 instant asset write-off. On a side note, it’s worth re-iterating the point that to qualify for this benefit, purchases of assets need to be under the $20,000 threshold as I’ve come across a few examples of purchases just over $20k and the tax deduction obviously cannot be applied.

Company tax rate cut

As a major pillar of the tax reform proposed in the budget, I am excited to see the proposal to reduce the company tax rate to 27.5% for the 2016-17 year for businesses with a turnover of less than $10m.

That’s more money for small and medium-sized businesses to re-invest back into their business to accelerate growth, to employ new people and ultimately to further stimulate the economy.

While this was an anticipated measure to encourage business investment in difficult times, it’s still a really positive move.

The government is also to be applauded for its proposal to eventually reduce company tax to 25% for all companies within 10 years. However, for me, having such a long timeframe in the shadow of an imminent election is just not practical.

These are big cuts which the opposition have already objected to in principle so we will have to wait and see whether they actually come to fruition.

Unincorporated small business tax discount

I’m also really pleased to see that if you’re trading as a Trust, Partnership or Sole Trader with a turnover of less than $5m you still get access to a tax cut, with an 8% tax offset up to a maximum of $1,000.

As another aside, one of the concessions that recently passed legislation in parliament and doesn’t seem to be widely known is that from 1 July 2016 small businesses owners are allowed to change the legal structure of their business with no tax implications.

So long as the owners are the same, you can transfer from a Trust to a Company or a Sole Trader to a Company and roll over all assets and stock with no tax implications in your personal name.

As many of my clients will attest, I’m a strong advocate of regularly reviewing a company business structure to ensure that it continues to be suitable for your current circumstances and provides both adequate asset protection and remains as tax efficient as possible.

I see far too many businesses operating out of the wrong business structures – in fact, 91% of businesses who consult with me prior to becoming a client are not operating in the most appropriate structure and are consequently paying significantly more tax than they need to be. Now is the time forsmall businesses to do something about it!

Superannuation was something of a mixed bag however one of the positives for me is:

Concessional contribution catch ups

So from 1 July 2017 if you have a superannuation balance of less than $500,000 you will be allowed to accrue unused concessional contribution cap amounts and make additional contributions. Unused amounts can be carried forward on a rolling basis for a period of 5 years after which they will expire.

This measure is aimed at assisting those who take a break from paid employment.

Finally, I have to also highlight that while there have been rumblings on both sides of parliament over the last few months regarding the potential scrapping of negative gearing, the good news is that nothing is changing….for now! You can still claim any loss on your rental property against your normal salary income.

All in all, I think this is one of those budgets that has significant sweeteners in it for the business community especially those turning over less than $10m.

I have to say however that I am sceptical that the longer term measures proposed will ever see the light of day and the cynical side of me thinks many of the measures proposed have been designed to get the business community onside in the run up to the federal election. What are your thoughts?