Budget 2015: Tax breaks for small business, more support for startups

Generous tax cuts for small businesses and removing obstacles to crowd-sourced equity funding for startups were two key measures announced in last night’s federal budget.

The Abbott Government’s second Budget revealed a tax rate cut of 1.5 per cent for small companies (to 28.5 per cent), along with a tax discount of 5 per cent (up to $1000) for small, unincorporated businesses.

From now until the end of June 2017, all small businesses with turnover less than $2 million will be provided with an immediate deduction for all individual assets costing less than $20,000 – up from the threshold of $1000.

This accelerated depreciation is expected to cut red tape and improve cash flow, allowing more small businesses to bring forward investment in the assets they need to grow their business and service their customers.

The tax measures for small business are the single biggest spending items in this years’ Budget. The cuts are part of a $5.5 billion Jobs and Small Business package from the government, aimed at “making Australia one of the best places to start and grow a small business,” budget papers said.

The package includes $3.25 billion in tax cuts, $1.7 billion in accelerated depreciation measures, $70 million to support startups and $40 million on measures that will cut red tape.

Support for startups

Startups will be allowed to immediately deduct professional expenses incurred when they start a business. Removing obstacles to crowd?sourced equity funding is also expected to help promote access to finance.

Employees in startups will get access to tax breaks on shares they receive as part of their pay. Offering startup employees a stake in their business has typically been one way they can compensate for otherwise potentially unattractive salaries.

There will also be efforts to streamline the business registration processes so it’s easier to start a new business, which the government hopes will foster more entrepreneurial activity.

The support for small businesses comes amid criticism from industry that the Australian Government doesn’t “get” startups, with a recent report by StartupAUS showing a lag in government funding and provisioning towards the growth of our startup ecosystem.

The StartupAUS report, Crossroads 2015 criticised previously proposed reforms as featured in the government’s Industry Innovation and Competitiveness Agenda (IICA), released October 2014. The $400 million plan included proposed changes to tax rules governing employee stock ownership plans.

Crossroads 2015 argued that although there were positive aspects to the IICA, “most of the proposed reforms are of little relevance to startups and seem to be focused on small businesses or companies in the ‘priority industry sectors’ (advanced manufacturing; food and agribusiness; medical technologies and pharmaceuticals; mining equipment, technology and services; oil, gas and energy resources; enabling technologies and services)”.

“StartupAUS believes that the IICA significantly misses the mark by incorrectly assuming that startups (as defined in this paper) have the same needs as small businesses,” the report said.

“Policymakers need to understand that tech startups have different needs from small businesses.”

Future progress

Small businesses should also expect to benefit from a new Capital Gains Tax rollover relief when changing their legal structures.

The Budget also featured tax breaks to foster job growth, with a reinvigorated ‘Restart’ wage subsidy expected to encourage small businesses to employ older workers.

The Budget acknowledged that “a thriving small business sector is at the heart of a strong economy”, with Australian small businesses currently providing jobs for 4.5 million people and producing more than $330 billion of Australia’s economic output.

The government plans to release a consultation paper later this year covering potential changes to the Corporations Act. The potential changes would reduce any unnecessarily burdensome or restrictive regulatory requirements for small businesses.