Small businesses have have been named the big winners of the 2016 Federal Budget, with $2.2 billion worth of tax cuts to be handed out over the next four years. In a bid to grow jobs and spur local innovation, the government is throwing its chips into the SMB sector with significant tax breaks, an internship programme and a commitment to technology startups. If you own a small business, here's what you need to know.
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The 2015 Federal Budget reduced tax rates for small businesses. This trend is set to continue in the years ahead. Treasurer Scott Morrison explained during his budget speech:
"Last year, we announced a 1.5 percentage point reduction in the tax rate for small businesses with a turnover of less than $2 million per year. Tonight we go further and share the ambition for smaller businesses to become bigger businesses.
"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."
Here's a breakdown of the chief carrots offered to small business in the 2016 Budget.
The 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 companies will receive a reduction in tax of 1 per cent while those turning over between $2 million and $10 million get a 2.5 per cent discount. This translates to $295 million of tax savings for approximately 870,000 businesses over the next financial year.
"Compared to the previous year, another 90,000 businesses are eligible for the lowest rate thanks to the wider definition of small business," Morrison said.
"This means businesses with a turnover of less than $10 million will also be able to access other tax incentives, including the small business depreciation pooling provisions, simplified trading stock rules and Pay-As-You-Go Instalments payments option."
In addition, the unincorporated small business tax discount will 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.)
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, from $25 million to $50 million in 2018-19 and from $50 million to $100 million in 2019-20.
"This will mean by 2020 more than half of all employees of companies in Australia will be in companies paying a lower tax rate of 27.5 per cent," Morrison said.
Incentives for making new hires
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. In other words, businesses will no longer carry all the risk and cost associated with hiring young, untested staff.
120,000 internship placements will also be made available over the next four years. Businesses who accept interns will receive an upfront payment of $1000. Internships will last for 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.
Furthermore, Australian employers will be eligible for a "Youth Bonus" wage subsidy of between $6500 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 startup love
Small businesses within the technology sector also received some love in the 2016 Budget. In short, the government is looking to create an "ideas boom" through innovation and entrepreneurship with the assistance of the CSIRO.
$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.
"As part of our national innovation and science agenda we are backing co-investment in new spin-offs and starts-ups created by Australia’s research institutions, through the CSIRO," Morrison explained.
“Reforms to employee share schemes and crowd-sourced equity funding will make it easier for start-ups to raise capital and our changes to company tax loss arrangements will 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, the Turnbull government's first effort is a bit of a mixed bag. With that said, small business appears to be among the few beneficiaries. Tell us what you think of the proposed tax cuts in the comments.