In brief: With a $5.5 billion 'Jobs and Small Business Package', Treasurer Joe Hockey placed start-ups and small businesses front-and-centre of the Australian Federal Government's 2015-16 Budget. Partner Gavin Smith (view CV), Senior Associates Valeska Bloch and Shaun Cartoon and Associate Tom Griffin look at the key elements affecting start-ups.
The Allens Accelerate team has broken down the key elements of the Federal Budget for start-ups:
- Tax cuts for small businesses – from 1 July 2015, the corporate tax rate will be reduced by 1.5 per cent to 28.5 per cent for small businesses, being companies with an aggregated annual turnover of less than $2 million.
- Expanded tax concessions for employee share schemes – the Government reaffirmed its commitment to improving the taxation of employee share schemes. The Bill, which is currently before Parliament, would provide tax concessions for employees of small start-up companies who are granted employee shares and options. Under the proposed changes, eligible start-up companies will be able to grant (from 1 July 2015) eligible options or shares to employees which will not be subject to Australian tax on grant, vesting or exercise. Instead, the employee will be subject to capital gains tax, generally when the shares are sold. This means that the CGT 50 per cent discount will generally be available at that time. You can read our previous coverage on this Bill in Focus: Start-ups rev your engines: proposed ESS tax concessions to benefit the start-up sector. Although the budget did not include any express measures to develop essential STEM skills in the Australian workforce, the employee share schemes measures will go some way in helping start-ups attract and retain talent.
- Immediate tax deductions up to $20,000 – small businesses will be able to claim an immediate tax deduction (accelerated depreciation) on each asset costing less than $20,000 that they start to use or install ready for use (rather than depreciated over five years). This concession will apply to assets acquired and installed ready for use between 12 May 2015 and 30 June 2017 and will benefit start-ups that are earning assessable income in their early years.
- Deduction for professional costs associated with starting a business – from 1 July 2015, new start-ups will be able to immediately deduct the professional costs associated with starting a business, including legal and accounting fees. Again, this will benefit start-ups that are earning assessable income in their early years.
- No CGT liability for legal structure changes – small business owners will be able to change the legal structure of their business without incurring a CGT liability, providing business owners with more flexibility to determine how they grow.
- Changes to the FBT system for work-related electronic devices – from 1 April 2016, the FBT exemption for qualifying work-related portable electronic devices will be extended to allow small businesses to provide their employees with more than one FBT exempt device (even if such devices are considered to have substantially similar functions – eg an iPad and a MacBook).
- Crowd-sourced equity funding – the Treasurer said that the Government would make it easier for small businesses to access capital by allowing crowd-sourced equity funding and by simplifying related reporting and disclosure requirements. Although details on the specific model have not yet been released, Treasury has set aside $7.8 million in funding over four years to enable ASIC to implement and monitor the regulatory framework to facilitate the use of crowd-sourced equity funding when it is unveiled before the end of this year.
- Streamlined business registration – the establishment of a single online business registration site will streamline the business registration process.
- Corporate regulation framework review – the Federal Government has committed to undertake a consultation process 'in the coming months' on the framework that guides the establishment and regulation of Australian Corporations, including theCorporations Act 2001 (Cth).
- Entrepreneurs Infrastructure Program – the EIP, which replaced the Innovation Investment Fund and Commercialisation Australia, will have its funding cut by $27 million over the next five years.
Mr. Hockey said that these Budget measures, including the lowest corporate tax rate in Australia since 1967, would empower 'small businesses to invest, grow and create jobs'. The extent to which this is the case for start-ups in practice remains to be seen.
Look for our in-depth Focus articles in the coming weeks as the detail behind the Government's policies is released and we analyse what the new Budget measures mean for your start-up.