The 2016 Budget creates hype, excitement and a mad rush of spending…..but first lets make sure the rules actually apply to you.
Last night the treasurer delivered his 2016 Budget and naturally, economists, accountants, business owners and politicians are all in a tizz (me included).
But first things first, let’s break it down and take a look at the important announcements and how they may (notice I say may) relate to your business.
You see here is where business owners get it wrong. They read the big headings like “Tax Cuts for Small Businesses” and they go out to Officeworks, or JB Hi Fi or the Apple store and they buy up big thinking they are now going to have extra money in their back pocket.
“But what they don’t stop and think about is….are these benefits list in the 2016 Budget actually applicable to my business in the first place?”
So here are my key take aways from the 2016 Budget and I suggest you work out which ones are applicable to you and your business and not get swept away with the big catchy headings in the media:
1. The company tax rate is reducing – and will go from 28.5% down to 27.5% from 1 July 2016 (income capping applies). So this is not a generic tax rate reduction for all business owners. You may not be a company structure – so this is where reading the fine print comes in handy. Whilst this is a tax cut, knowing how this applies to your company is imperative. You see if you make a loss – where is the benefit? If you company profit is very low – is there really a tax advantage? Now I haven’t looked at the other benefits of companies here and I know it is not all about the tax….but read the headings about the budget today and the main focus is on tax reductions so all I am saying is if you are not getting that benefit….then…..well….where is your benefit?
2. The company tax rate is aimed at 25% by the year 2026 – so this is a long term plan. You might not be a company structure now, but if this is something you are considering in the next few years, then you need to be thinking about these company tax rates in your overall structure evaluation.
3. If you are a sole trader, then the tax rates are changing for the middle income levels. So currently the middle threshold (rate of 32.5%) goes up to $80,000 – and this is increasing to $87000. This is only impacting approximately 500,000 individuals and the true tax reduction at the top end of that scale is only around $2000 (sorry – no time to do full calculations on every single income level).
4. Incentives to hire interns and programs to reduce youth unemployment. Business owners could be eligible to receive $1000 for hiring interns and the government will in turn pay the intern (gosh that is a mouthful) $200 per fortnight. There are also some incentives for business owners to take on those who are not “job ready”. Conditions of this are a tad sketchy (I mean the budget was less than 24 hours ago) especially around where the interns come from, but this could be a great way to get younger people into your business and form part of you succession planning strategy.
5. Changes to HECS repayments. Whilst this may not effect business owners themselves, it may change the payments required to be withheld for some (or none) of your employees – so it is nice to be on top of it. There are two changes to HECS being tabled – a lower contribution by government to bachelor degrees and also lowering the thresholds where HECS will need to be repaid. Imperative with changes to payroll like these that you use a cloud accounting system which takes all of these changes into account for you automatically. MYOB have given the 2016 budget the thumbs up, and their software could be what you need to streamline any payroll changes.
So my thoughts are two fold – I think there are some great initiatives for business owners (note I didn’t say small business owners). I love the emphasis on reducing youth unemployment and I hope that this is implemented properly (aka in an easy fashion for business owners to embrace) by the government.
How any of the 2016 budget changes actually effect your business, will need to be determined on a case by case basis. Don’t get caught up in the hype.