On 2 April 2019, Treasurer Josh Frydenberg handed down the 2019–2020 Federal Budget. However, with a federal election looming, it’s unclear whether the proposed budget measures will be implemented. In this article Gene Schirripa looks at how the Budget might affect Canberra businesses.
In the context of the Federal Budget, Canberra is considered neither a metropolitan nor a regional area. This often means that there are few announcements specific to the ACT region, as was the case with this Budget. The most significant announcement was $50 million in priority funding for regional infrastructure in the region.
With an election focus in mind, the Budget included many measures directed toward small-to-medium enterprises (SMEs) that have an annual turnover of less than $50 million. These measures could have a significant impact on our local economy as the majority of private enterprises in the region are SMEs.
If you operate an SME, here are the three major announcements that may affect you:
- Instant asset write off: SMEs will be able to claim an immediate tax deduction for depreciating assets costing less than $30,000. This applies to any assets purchased after the Budget announcement or those installed and ready for use before 30 June 2020. This is a boost for SMEs looking to upgrade their equipment or other assets.
- Company tax rate cut: The company tax rate for SMEs has been decreased by 2.5% from 27.5% to 25.0%. These cuts have been brought forward by five years.
- Delay to Division 7A measures: The Government had previously announced it would introduce measures dealing with Division 7A Rules. Under Division 7A of the Tax Act, if a company makes a loan to a shareholder, the payment is treated as an unfranked dividend and is added to the recipient’s taxable income, unless it can be characterised as a ‘complying loan’ by operation of the rules.
- The proposed measures would narrow the circumstances in which tax-free distributions could be made to shareholders (primarily by loans). Delaying such measures, at least until 1 July 2020, means that SMEs with existing loan proposals will have some time to prepare for the changes.
- The government will undertake further consultation, so for SMEs, it is a matter of ‘watch this space’.
How can we help?
There are a number of positive outcomes for SMEs in the proposed 2019–2020 Federal Budget. This is good news for the Canberra economy.
If you have questions about the impact of the Budget on your business or your tax obligations, or if require any other business advice, please contact our Business Law team on 02 6285 8000 or by email.