Budget 2016: Tax relief welcomed by small business

Small businesses are among the winners in the federal government's budget, set to gain thousands of dollars in tax concessions.

Budget 2016

File image of a builder at a housing estate in Canberra, Tuesday, May 15, 2012. Source: AAP

The government will cut the company tax rate and extend the definition of a "small business" to include those with a turnover of up to 10 million dollars.

Stephen He runs a small mixed business in Richmond’s predominantly Vietnamese-populated Victoria Street in inner Melbourne.

His shop turns-over between one and two million dollars a year.

Come July 1, he'll receive a boost when his company tax rate is cut by 1 per cent.

“It's pretty good actually, especially for small business,” said Mr He.

 “One per cent may mean a lot at the end of the day. Paying less is always good.”

Mr He hopes to grow his business and that's just the kind of investment the government is looking for.

Executive General Manager of the NAB Business Cindy Batchelor told SBS News small businesses are the backbone of the Australian economy.  

“Ninety-seven per cent of businesses are small businesses, and about 50 per cent of Australians who are in employment, are employed by small business. So it’s significant.”

Ms Batchelor said putting money back in their pocket would lead to greater cash flow, allowing them to expand.

Chief Executive of the Victorian Chamber of Commerce and Industry Mark Stone has been campaigning for small business tax relief for some time.

“It will allow businesses to re-invest in the capital growth of the business - but more importantly, to be able to employ more people.”

In his first budget, treasurer Scott Morrison made their life easier by announcing that in the next financial year, small businesses earning less than 2 million dollars will have their tax rate cut to 27 point five per cent.

Mr Morrison also extended "small business" terms to those earning up to 10 million dollars.

That means some 60 thousand extra businesses stand to benefit by 2.5 per cent, after missing out last year.

And in the long term, tax rates will continue to fall as thresholds rise.

By 2023/24, there'll be no annual threshold income for the 27.5 per cent tax rate, and every year thereafter the rate will drop until it reaches 25 per cent by 2026/27.

The 20 thousand dollar asset write-off will also be expanded but must be used by June 30, 2017.

ABS figures show that construction makes up a large proportion of the more than two million small businesses operating in Australia today. This means builders and tradespeople are among the big winners after facing a number of challenges, according to Master Builders Association CEO Wilhelm Harnisch.

“As the population grows, the demand for housing will grow. What we have at the moment are severe constraints, which means that the building industry can’t supply what the market wants, both in terms of numbers and in terms of the choice.”

Mr Harnisch called the cut a “no brainer”.

“For this industry, which is a $200 billion industry, a tax cut is vital to maintain productivity.”

He argues it will eventually improve housing affordability too.

“With the deductibility of capital equipment, it will mean that there is considerable downward pressure on the cost of tradies and the cost of building.”

“So this should be a positive overall for house owners, because in the end, down the track, there will be downward pressures being placed on the cost of constructing a house.”

4 min read
Published 4 May 2016 at 7:31pm
By Sarah Abo