June 2010: What the government’s tax reforms mean for small business

There was plenty of good news for small business in the government's response to the Henry Tax Review, and only a few negatives. Even better, the positive changes are scheduled to come into effect from 1 July 2012, while the most significant new cost — an increase in compulsory superannuation guarantee payments — will be phased in gradually from 1 July 2013.

The Government’s response is not yet law and you should consult your tax advisor before making any decisions in relation to the announcements.

Here are some highlights.

Positives

• Reduced company tax rate. The main headline-grabbing announcement was a cut in company tax for small businesses with a turnover of less than $2m a year. From the 2012/13 financial year, small businesses will pay company tax at a rate of 28%, down from the current 30%. Larger organisations will have to wait until the 2014/15 financial year for the same benefit.
• Simplified depreciation rules for small businesses. Perhaps the biggest positive change was the proposed reform of complex depreciation rules that determine how you claim for the cost of new business assets.
  
  

From 1 July 2012, business owners will be able to claim in full for new assets costing up to $5,000 in the year they are purchased, rather than depreciating the cost over several years. That could boost your cash flow significantly. If you borrow to buy an asset, it could also allow you to claim a deduction upfront while spreading the cost of your purchase over several years, as you gradually pay down your loan.  In addition, the new rules will allow small businesses to write-off all other assets (except buildings) in a single depreciation pool at a rate of 30%.

Negatives

• Super guarantee to increase. The other headline-grabbing change was the proposed increase in the super guarantee contribution rate to 12% from the current rate of 9%. Less widely noted, however, was the fact that the increase will be phased in gradually with annual increments of 0.25% in the first two years and 0.50% p.a. thereafter. The increases will be phased in from 1 July 2013 to 1 July 2019. 
• Small business threshold unchanged. Of course, not all of the Henry Review's recommendations were adopted by the government. One notable omission was a proposal to change the definition of "small business" to one with an annual turnover less than $5 million, rather than the current $2 million threshold. If adopted, that change would have made a range of tax concessions available to thousands of more businesses.

Watch this space

At the time of writing, the proposed changes have yet to become law, so complete details are not yet available.

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• Important information.
  As this advice has been prepared without considering your objectives, financial situation or needs, you should before acting on this advice, consider its appropriateness to your circumstances including by considering the terms and conditions of any product or service mentioned.