2015 Federal Budget: Great for Business, for some, sort-of
The $20,000 write-off limit per asset is remarkably generous, and will clearly benefit every business in different ways.
Some (like us) have less than 12 months ago undertaken a major computer system upgrade, so there’s nothing for us or for many others here!
But if you are a pizza business with 8 cars on the road and about to turn the vehicles over at less than $20000 a pop, this could be a remarkable opportunity to upgrade the fleet and get an immediate, one-off tax deduction (just get ready for a jolt in subsequent years with those productive new vehicles and all the money you’ll make and tax you pay, with no proper matching-off of expenses to revenue).
A few years ago a little known and oft-overlooked tax offset (including by many tax agents, to the significant cost of a few) was the ‘entrepreneur tax offset’. Many of our clients benefited significantly from the ‘ETO’. The only silly issue with it, was it was a bit convoluted to claim (but complex convolution has been taken to new heights by the current private health cover disclosure requirements).
Well, the ETO is back, sort-of, for unincorporated small businesses. You will receive a 5% discount on your tax, limited to $1000 would you believe?
Incorporated small businesses with revenue under $2m will get a tax cut from the current company tax rate of 30% to 28.5% which (1) is somewhat good for cashflow (2) reduces the ‘value’ / benefit of tax deductions (3) is no good for many small professional consultants who must pay-out all of their profit, and be taxed in their own names rather than ‘benefit’ from the lower corporate tax rate (4) makes franking credit and related calculations more complex.
So apart from (2) (3) and (4), this is a great idea.
So if you are currently a high-income earning small business and have the option to contribute an additional amount to superannuation, you have the opportunity to ‘enjoy’ a tax deduction of 30% for the contribution you make, which then gets hit with the 15% superannuation contributions tax. As a very high income earner, you are also exposed to ‘Division 293 tax’, being another 15%. So you end-up paying 30% tax, on the contribution that you got a 30% deduction for. No net benefit!
The lower 28.5% means this equation worsens, providing you a tax deduction at a rate of 28.5%, given you then pay 30% through the superannuation system. So it ‘costs you’ to contribute to superannuation and have it ‘locked away’ for your retirement.
A high income earner in this situation is better-off if they don’t contribute to superannuation. But you won’t see that in any myopic media commentary. Where’s the ‘unfair’ tax incentive?
For the high income consultant who must pay out all profit from the company as salary/bonuses/ superannuation, there remains limited benefit (especially given contribution limit rules), with the effective 30% contribution tax exposure (including Division 293 tax), with a deduction effectively against personal income at 49% (being the top marginal rate of 45%, the 2% additional deficit levy that still applies for 2015 and 2016, plus the medicare levy of 2%). And higher than 49% (!), if you are exposed to the Medicare Levy Surcharge.
So don’t be a high income earner.