The impact of Budget 2017-18 on SMEs
The extension of the immediate write off of plant and equipment costing less than $20,000 extended for acquisitions prior to 30 June 2018;
Extension of Payment Reporting to couriers and cleaners;
- Small business Capital Gains Tax (CGT) breaks to be tightened
Extension of Immediate Write off
The extension of the immediate write off by small business will be welcomed. This together with the change of the definition to businesses with an aggregated turnover of less than $10m (passed by Senate but not yet by the House of Representatives), will provide an immediate deduction and hence a lower tax bill to a broader range of businesses.
For equipment vendors that have a cost of less than $20,000, they may experience a lift in sales or at least be able to maintain existing sales levels.
Extension of Payment Reporting
Currently the Taxable Payments Reporting System (TPRS) applies mainly to the Building and Construction industry. This requires the reporting of payments to sub-contractors by contractors within that sector.
The expansion of the reporting requirements to couriers and cleaners is an anti-avoidance measure to reduce tax leakage associated with the black economy.
Prohibition on sales suppression technology and software
In a move to combat the cash economy, the Government will act to prohibit the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software. The prohibition will have effect from the date of Royal Assent of the enabling legislation.
Sales suppression technology and software allow businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS equipment. Income earned from these transactions and tax owing from this income is not reported to the Australian Tax Office (ATO). The revenue risks such technologies pose have been highlighted by the OECD.
It is not known how this prohibition will be implemented, or if it will overcome those who are determined not to report certain cash transactions.
Small Business CGT
While the definition of small business for many measures has been lifted for those with an aggregated turnover of less than $10 million, the Government has left the turnover threshold for the Small Business CGT Concessions at less than $2 Million.
This will lead to confusion by small business operators as to what concessions they have access to.
In addition, the Government announced the Small Business CGT Concession will be tightened to deny eligibility for assets which are unrelated to the small business.
The Budget papers cite as an example arrangements where ownership interests in larger businesses do not count towards the test for determining eligibility for the concession.
The government provided little detail on the measures.
Also of interest is that the statement is an integrity measure and not expected to raise additional tax revenue
Sam and Samara currently own a company, Sunrise Bakers Pty Ltd, through which they operate two bakeries in Western Australia. During the 2017-18 year the company has an aggregated turnover of $4,500,000 and taxable income of $490,000. Sunrise Bakers Pty Ltd purchased two new baking ovens costing $18,600 each (exclusive of GST) on 24 June 2018 in order to expand the baking capacity of the bakeries and to increase the sales to nearby restaurants and hotels.
Due to the ovens costing less than $20,000 each, the company will be entitled to an immediate tax deduction of $37,200 in the 2017-18 year. This will reduce the company’s taxable payable by $10,230.
The immediate tax deduction for assets costing less than $20,000 is now set to cease as at 30 June 2018.
Winners will be those small businesses wishing to acquire plant and equipment costing less than $20,000.
There appear to be no losers from the provisions specifically relating to SMEs. However other Budget measures such as the levy to be imposed on Banks may lead to higher banking and borrowing costs.