Small business is the big budget winner: but there are a few “quibbles”

Small businesses in Western Sydney – and all over the country – will have been largely pleased with Tuesday night’s Federal Budget announcements.

They will certainly welcome the immediate write off for all assets of $20,000 or less purchased from Budget night to 30 June 2017. This will provide a spending incentive before 30 June and again as a sustained incentive next year.

The accelerated asset write-off for small business also simplifies tax compliance as businesses are no longer required to account for these assets over their useful life. So a double-win.

Just one quibble here – it would have been desirable to see more businesses get the chance to access these incentives. Instead the threshold for qualifying as a small business remains at $2m turnover. It would be good if this could be revisited and indeed indexed in the future.

Extending the initiative to private businesses (too often referred to interchangeably with small business) with higher turnover to really boost Australia’s economy would also be welcome.

Measures that could have been considered are accelerated asset write-offs for larger private businesses. Investment allowances on asset purchases were another option.

The reduced tax rate to 28.5 percent for small businesses operated as a company is welcome. Australia joins other countries in having a lower rate for small companies. Having dual corporate tax rates is not ideal as it introduces more complexity into the tax system but Australia is not unique in this respect. It should be seen as the practical cost of having a targeted measure aiming to give small business, and hence for the wider economy, a kick-start.

Of course not all small businesses operate through a company and so sole traders, partnerships and trusts do not benefit from this measure. The Budget addresses this issue by allowing a 5 percent tax discount up to $1,000.

The Budget announcements on digital age investment to improve dealing with government and a simpler way to file tax returns is welcome – any reduction in compliance costs for business is good.

But it wouldn’t be a Budget if there was not at least something to grumble about – and businesses and employees might be surprised to find that the claiming of car expenses is to change, with taxpayers expected to pay over $800 million more tax through reduced car expenses claims.

But more widely, smaller businesses will be feeling pretty positive. Like all businesses, they want stable conditions at all levels so that they can invest and recruit staff with certainty. When employing, businesses would welcome measures that increase the pool of job candidates and more assistance with child care and parental leave should be viewed through this lens. The Budget measures here should go some way to encourage more women into the workforce.

This was not a Budget with lots of complex tax measures – indeed, this was not expected given that the government’s tax reform process has not yet reached a White Paper state.

Australian businesses want to have a level playing field with their competitors and the so-called ‘Netflix tax’ goes part way to ensuring this happens. But the levying of GST on physical as well as digital goods and services sold in Australia could have been part of this discussion.

The government will be expected to show its cards on significant tax reform over the next year in the lead up to the next election. But for now, small business will consider the Budget positively and will take its lead, in part, from the leadership shown in implementing those measures. If business can feel a sense of stability and certainty, it will be more inclined to invest and employ more people, which we all want to see.

Read the full KPMG Federal Budget analysis here.


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