A key component of the Federal Budget is the Government's $5.5 billion small business package. The centrepiece of the Budget, it contains a number of initiatives that aim to positively impact small businesses, and in particular, start-up businesses.
These include:
- a 1.5% cut to the company tax rate for small businesses, reducing it to 28.5%;
- a single online registration site to streamline new business registrations;
- changes to upfront deductions for professional start-up expenses, including legal fees;
- beneficial changes to employee share schemes; and
- the removal of obstacles to crowd-sourced equity funding.
Three of these initiatives are discussed in more detail below.
Do you qualify as a small business?
The initiatives implemented in the small business package apply only to businesses with an aggregated annual turnover of less than $2 million.
Upfront deductions for professional start-up expenses
Starting from 1 July 2015, start-ups will now be able to immediately deduct a range of professional expenses associated with starting a new business. These include professional, legal and accounting advice. The current laws allow costs to be deductible over a five year period. This change should provide immediate cash flow assistance in the formative years of a new enterprise.
Additional tax concessions for employee share schemes
The Australian start-up community has long been calling for changes to employee share schemes. Currently, employees who are issued shares or options as part of their remuneration package are required to pay income tax at the time those shares or options are received, regardless of whether they have realised any financial benefit. It has long been complained that existing laws place Australian start-ups at a significant commercial disadvantage when compared to overseas competitors.
With effect from 1 July 2015, employee share schemes will now be more accessible and provide additional tax assistance to eligible companies through a start-up concession. Draft legislation released in January 2015 is already before Parliament. The small business package provides some technical changes that will ensure employees will not have to pay tax until they receive a financial benefit from the shares.
Removal of obstacles to crowd-sourced equity funding
The Government has also pledged to provide easier access for small businesses to crowd-sourced equity funding. This announcement follows consultation earlier this year in which many technology sector entrepreneurs and investors called on the government to establish a regulatory framework for the burgeoning source of early-stage capital. However, rather than abolishing the need for start-ups to register as a public company before they can run a crowd-sourced equity funding campaign, the Government has instead pledged to make it easier and cheaper for start-ups to become public companies and develop a new regulatory framework for crowd-sourced equity funding. It will do so by providing the necessary funding to Australian Securities and Investment Commission to simplify reporting and disclosure requirements for start-ups. Similar reforms have already been implemented in the United States, Britain, New Zealand and much of Europe. Draft legislation is due to be tabled before November, following further public consultation.
We will continue to update you on material developments affecting small businesses and start-ups.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
