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What the 2016 Budget Means for Small Business

Today, news all over the country has touted Australian small businesses as the big winners of the 2016 Federal Budget, announced last night. And it’s no wonder – with $2.2 billion worth of tax cuts to be handed out over the next four years, the Turnbull government’s first budget is setting its sights on bolstering local SME success for the overall good of our nation’s economy.

Economists are calling this a smart move. In order to grow jobs and promote local innovation, small business needs to hold strong.  As a result, the government is putting weighty support behind the SME sector with significant tax breaks, an internship programme and a commitment to technology startups.

 

If you own a small business, here’s what the budget means for you:

The 2015 Federal Budget reduced tax rates for small businesses. And this is set to continue in the years ahead. Last year, there was a 1.5 percentage point reduction in the tax rate for small businesses with a turnover of less than $2 million per year. Now, this budget announces it is taking the commitment even further, spurred on by aspirations for smaller businesses to become bigger businesses.

In his budget announcement, Federal Treasurer, Scott Morrison, explained that “if we wish to continue to see our living standards rise with more jobs and higher wages, we need to ensure our tax system encourages investment and enterprise.”

With this in mind, here’s a breakdown of what’s the budget has to offer to small business looking to grow.

 

Tax breaks

  • From June 1, small businesses with an annual turnover of under $10 million will pay the cheapest company tax rate of 27.5 per cent.
  • Smaller enterprise will receive a reduction in tax of 1 per cent while those businesses turning over between $2 million and $10 million get a 2.5 per cent discount.

This equates to $295 million of tax savings for approximately 870,000 businesses over the next financial year.

  • To put this in perspective, compared to last year, this makes another 90,000 businesses now eligible for the lowest rate thanks to the wider definition of what constitutes a “small business” for tax purposes.
  • The benefits for small business don’t stop at tax rate discounts. This budget increases eligibility across a range of factors for businesses with a turnover of less than $10 million, meaning they will also be able to access other tax incentives, including: 
    • Small business depreciation pooling provisions
    • Simplified trading stock rules
    • Pay-As-You-Go Instalments payments option
  • Also, the unincorporated small business tax discount will now be increased to 8 per cent, with the turnover threshold extended from $2 million to under $5 million. 
  • Businesses with a turnover of less than $10 million will also be able to access instant write off for equipment purchases of up to $20,000. Previously, the turnover threshold was less than $2 million.

 

Going forward, the government has also pledged to increase the turnover threshold for the “cheapest company tax rate in the years ahead”, from:

  • $10 million to $25 million in 2017-18
  • $25 million to $50 million in 2018-19
  • $50 million to $100 million in 2019-20

 

The purpose of the benefits are intended to be long term and far reaching.

The government projections on this say this means that by 2020, more than half of all employees of companies in Australia will be in businesses paying a lower tax rate of 27.5 per cent.

 

Incentives push for youth employment

The 2016 Federation Budget will also incentivise small business to hire more young employees.

  • From 1 April 2017, young job seekers will have access to “Youth Jobs PaTH” – a pre-employment skills training programme run through the Australian Government’s employment service “jobactive”. 
  • The idea behind Youth Jobs PaTH is to get young job seekers skilled up in areas such as IT literacy, teamwork and presentation prior to entering the workforce. The point being that businesses will no longer carry all the risk and cost associated with hiring young, lesser experienced or untested staff. Additionally, internships got a big push, with:
    • 120,000 internship placements will also be made available over the next four years.
    • Businesses who accept interns will receive an upfront payment of $1,000.
    • Internship periods of 4 to 12 weeks with the job seeker working between 15 and 25 hours per week. At the conclusion of the internship, it will be up to the business whether or not to offer them ongoing employment.

 

Beyond this, Australian employers will be eligible for a “Youth Bonus” wage subsidy of between $6,500 and $10,000, depending on the young person’s job readiness. Existing wage subsidies (Indigenous, long-term unemployed, etc.) will also be “streamlined” to make them easier for employers to access.

  

Tech startups get the thumbs up

The government is looking to create an “ideas boom” through innovation and entrepreneurship with the assistance of the CSIRO for small businesses within the technology sector in the 2016 Budget.

  • As a result, $1.1 billion will be set aside for a ‘National Innovation and Science Agenda’ supporting “a culture of ideas and innovation” with the ultimate end goal of commercialisation and increased private investment.
  • Reforms to employee share schemes and crowd-sourced equity funding are intended to make it easier for start-ups to raise capital while changes to company tax loss arrangements are expected to make it easier for existing businesses to reinvent themselves.
  • There will also be tax concessions for early stage investors to encourage investment in innovative startup firms.

 

Like most Federal Budgets, this budget is a mixed bag but small business appears to be among the main beneficiaries to reap the benefits in the years ahead. And that is positive news for SMEs looking to grow.