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The tax changes not in the headlines

The Coalition government’s 2015 federal budget has been generally accepted as being pro small business. The three policies that have received most publicity relate to the immediate tax deduction for assets costing under $20,000, a 1.5 per cent reduction in the tax rate for small businesses and an income tax discount of up to $1000 for certain small business owners. But there were also a number of other measures designed to help small businesses.

However the major omission was a change to the qualifying turnover threshold for small business entities. It would now stand at $2,435,000 if increases in CPI from June 2007 to March 2015 were applied to the $2 million turnover test.

Q. In this year’s federal budget changes were announced that affect small businesses. I have a small company and want to know if there are going to be any changes to such things as capital losses carried forward, the small business 50 per cent CGT exemption and changes to a business structure.

A. There was a new capital gains tax rollover exemption introduced for small business entities that change their legal structure. Currently if a business has started as one legal structure such as a sole trader, partnership or company, and the owners decide to transfer the business into a trust, capital gains tax can be paid on what is effectively the sale of the business.

Under the new policy owners can change the legal structure of their business and no income tax would be paid on a capital gain made at that point. Using this type of rollover does not avoid income tax but transfers the liability to pay tax at some future date when the business is sold by the new legal structure owning the business.

This could prove to be valuable benefit to owners that have mistakenly formed a company to operate their business. Companies are good for providing legal protection against the owners being sued, and for accumulating more after tax profits to grow a business, but they are seriously disadvantage when it comes to capital gains tax.

Where a business is operated through a company the owners effectively do not get a benefit from the 50 per cent general CGT exemption and the 50 per cent small business active asset discount The introduction of this new rollover provision will mean a business can be transferred into a discretionary trust, without there being income tax payable on the transfer, and the owners will get the full benefit of all small business CGT discounts and exemptions.

The other main policies introduced in this year’s federal budget that will benefit small business owners included a fringe benefits tax exemption for work-related portable electronic devices, the ability to claim an immediate tax deduction for business start-up costs including expenses of establishing a legal entity, and a new, quicker simpler business registration process when setting up a new business.

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