2017 Federal Budget – What’s the impact for SMEs?
17 Jul 2017
The 2017/18 Budget includes some new measures which, together with the recent passing of some of last year’s measures, create significant changes for SMEs.
$20,000 instant asset write off is extended and expanded
Originally set to expire on 30 June 2017, business owners will be pleased to learn that the $20,000 instant asset write off has now been extended by another year. It has also been expanded – previously only applying to small businesses with an annual turnover of up to $2 million, firms with an annual turnover of up to $10 million are now eligible for the instant asset write off. Importantly, this higher turnover threshold applies from 1 July 2016.
Company tax cuts begin to take effect
You may remember that a feature of the 2016 Budget was a plan to progressively cut company tax rates over the next decade to 25%.
The first stage of the plan involved reducing the tax rate for small business (those with a turnover of up to $10 million) from 30% to 27.5%. After a struggle in the Senate, the Government finally managed to get support for this 2016 measure, just before the 2017 Budget was delivered. As the tax cut applies from July 1 2016, small business can benefit from this change in the 2016-17 financial year.
Next year (2017/18) the 27.5% company tax rate will be extended to companies with a turnover of up to $25 million, and in the following year (2018/19) it will be further extended to companies with a turnover of up to $50 million.
This amounts to a significant reduction in corporate taxes for many, but it also introduces a multi-tiered franking credit regime for the foreseeable future (i.e. some companies will have the standard 30% franking credit attached to dividends and others will only attach franking credits at 27.5%). Affected companies will likely require some tax and cash flow planning around existing franking accounts.
Sourcing overseas skilled labour becomes more costly
The Government has announced a new annual foreign worker levy. Small business entities with a turnover of less than $10 million per annum will be hit with a levy of $1,200 per worker per year for those on temporary work visas, and $3,000 per worker per year for those on a permanent skilled visa. For larger firms, the levy increases to $1,800 for temporary work visas and $5,000 for permanent skilled visas.
The Government plans to inject the money raised by the levy into a new Commonwealth-State Skilling Australia Fund to “focus on apprenticeships and traineeships in high demand occupations that currently rely on skilled migration”. We’ll watch and see how that plays out. Regardless, it’s an increased cost on some SMEs and takes effect from March 2018.
Taxable payments reporting system to be extended
From 1 July 2018, the taxable payments reporting system (TPRS) that currently only applies to businesses in the building and construction sector will be extended to contractors in the courier and cleaning industries.
Under this system, businesses are required to provide the ATO with a detailed report of payments made to contractors – including the contractor’s name, ABN and total payments made. The TPRS is an ‘integrity measure’, created to ensure that contractors accurately report their income.
New rules for new residential premises
For SMEs and others involved in building new residential premises, there are new rules that will apply for properties purchased after 1 July 2018.
Under these measures, the purchaser will remit GST payable on new residential premises directly to the ATO, rather than to the builder. The mechanism and methodology for this is still to be finalised, but we would expect that the settlement agent will have to remit 1/11th of the purchase price to the ATO at time of settlement, unless the builder can provide an ATO-approved method that removes this requirement.
Budget repair levy comes to an end
Individual taxpayers with incomes above $180,000 per annum will see a reduction in tax payable from 1 July 2017, via the ending of the Budget Repair Levy. This levy increased the top marginal tax rate from 47% to 49%. That top marginal rate of income tax will revert to 47% on 1 July.
Find out more
If you would like more information on how the Budget changes might affect you or your business, or advice on how to best respond to these changes, please get in touch via firstname.lastname@example.org or contact us here.
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