Budget Brief: Business
There have been a large number of changes and announcements in relation to the general business environment. A large number of the changes are focused on driving jobs and growth through small business. The other changes are generally focused on areas where the Government believe tax reform is required to address inconsistencies within the tax system or where multi nationals have been seen to be accessing loop-holes or complying with the letter but not the spirit of the law.
The main changes to have been noted below:
The turnover threshold for classification of a business as a small business is to be amended increasing it from $2m to $10m enabling the business to access a number of small business tax concessions (as well as the reduced corporate tax rate) from 1 July 2016.
The existing concessions include but are not limited to:
Importantly, the turnover threshold changes will not affect eligibility for the small business CGT concessions, which will only remain available for businesses with annual turnover of less than $2m or that satisfy the maximum net asset value test (and other relevant conditions such as the active asset test). This inconsistency continues to add complexity and confusion as to what is a small business.
Unincorporated business will receive an increased tax discount (or tax offset) over a 10-year period from 5% to 10%. The discount increases to 8% on 1 July 2016 and then increase to 10% in 2024-25 with further scheduled increased to reach a final discount of 16% in 2026-27. The maximum value of the discount will remain at $1,000.
The introduction of a diverted profits tax (DPT) at a rate of a 40% is a further attempt by the government to capture tax revenue from multi nationals that have been utilising perceived loop holes. Whilst titled and styled as a DPT (similar to the UK DPT), it has significant differences from the UK's DPT.
The proposed new tax will target companies that relocate profits offshore that result in certain criteria being met including a de minimis threshold for Australian turnover of $25 million and the transactions / entities not having sufficient economic substance.
The actual application of the law will be subject to a consultation process but is scheduled to take effect for income years commencing on or after 1 July 2017.