Jo’s Budget Blog

Well, wasn’t that a different budget to last year? After last year’s budget packed with unpopular austerity measures to combat the “Budget Crisis”, this year the tone is much more about investment, encouragement and dare I say – a looming election.

But ultimately, when it comes to the budget, the main thing we are all concerned about is “what’s in it for me”. So rather than talk about changes to employee share schemes, tax rate changes for backpackers, multinational tax measures and even childcare (because let’s face it, my kids are no longer requiring it), I will talk about the tax impact that this budget may have for me and my clients.

I, like many of my clients, fit into the small business category. This means that my turnover is less than $2 million per year. So for today at least, I feel like a winner with this budget.

There are some tax concessions via rate changes, with the company rate of tax reducing to 28.5% for small business, and a tax discount of 5% (up to $1000) for those who do not trade through a company structure. Anything that saves us tax is a good thing.

But the best concession for those of us in small business is the immediate write off of new assets purchased (excluding in-house software or horticultural plants), up to $20,000. Previously we had this concession, very briefly, with an immediate write off up to $6,500 so the increase to $20,000 is sensational. OK – so who wants a new computer?

The downside to this is that the money to pay for these assets needs to come from somewhere. I don’t know too many small businesses with a spare $20,000 sitting around to spend on capital. Hopefully the banks will come to the party and relax their credit policies enough to allow those in small business to take advantage of this great concession. It will be even better if the impact of this additional spending creates the outcomes the government hope for – a stimulated economy.

So what about my clients who have a turnover of more than $2 million? Well congratulations, you are not considered to be a small business anymore, but unfortunately, there is nothing in these great concessions for you. My concern about this is the lack of incentive for a small business to grow. The $2 million threshold was set many years ago, when $2 million turnover was something to be aspired to but difficult to achieve. That figure does not seem so unachievable these days, and I am sure that a business with a turnover just exceeding $2 million would still consider themselves a small business. I am also sure that this would be an essential area of “small business” that could drive economic recovery, employ more staff and definitely could take advantage of these tax breaks. It is a pity a rethink on this definition was not part of the budget.

For my farming clients – there was a bit of cool stuff in there for you too. Most of you would fall under the small business category anyway, but specifically mentioned were the following 3 new concessions:

1. Immediate write off of water facility assets. This includes things like dams, tanks, bores, irrigation channels, pumps, water towers and windmills. Previously these were able to be written off over 3 years.
2. Depreciation over 3 years of fodder storage assets such as silos and tanks for grain storage (these would previously have been depreciated over 50 years).
3. Immediate write off of new fencing (which would have previously been depreciated over 30 years).

So there are no excuses to put off that fencing now!! Well, actually, there is an excuse. This does not come into effect until 1 July 2016 so just let those sheep wander free for another year and a bit. Unless you are a small business, in which case, spend less than $20,000 on the new fencing and you can write it off now.

Of course there are plenty of other bits and pieces in the budget but one item that may be a concern to some of my more mature clients is the change to the asset test for the aged pension. If the budget is passed, then the upper threshold for the assets test will reduce significantly. There are a number of pensioners who will lose the pension under these new thresholds. However, these pensioners will retain their health card – which is often a lot more valuable than the few dollars of pension they may be getting each fortnight.

I said I wouldn’t mention childcare, but there is a promise of some good changes to childcare to help get parents back into the workforce. These seem to be dependent on changes to Family Tax Benefit getting through, and there is likely to be some pressure on these changes coming from the independent Senators.  There are a number of parents who cannot afford to return to work after having a child due to the cost of childcare, so these measures would seem beneficial to the economy as a whole.

Overall, the budget was probably not that remarkable, generally pretty acceptable, and in some parts a bit exciting (for small business). Hopefully it will have the impact the government is hoping for – stimulating spending, creating jobs, and increasing economic growth. This much softer approach is sure to leave a more favourable view to impending voters, and I am sure that was also in the minds of the current government when putting this budget together.

Jigsaw Jo