The latest updates on PPS leases and Small Business Tax Thresholds. Important if you are taking on Personal Property Securities and also running or starting a Small Business.
The Act amends the minimum duration of PPS leases from more than one year, to more than two years, and sets out that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than two years.
The changes are to the small business tax threshold from $2 million-$10 million and also the reduction of the corporate tax rate to 27.5% for companies with a turnover of less than $10 million (with that threshold increasing in future years and the rate coming down from 2024).
The amending tax legislation also gives some additional tax relief to start-up businesses. Commonly many expenses associated with the acquisition or commencement of a business are either treated as capital or are not deductible upfront but over five years. Legal costs, bank fees and some accountancy fees are an example of the latter.
As part of the small business concessions (now expanded to businesses with a turnover of less than $10 million) these start-up costs are deductible upfront. So if you are buying or starting a business you should talk to your accountant about the deductibility of these upfront costs.
Small businesses are also liable to account for GST on a cash basis instead of an accruals basis. As well as the upfront deductibility of certain expenses that would otherwise have been amortised over five years, there is also the prospect of the upfront deductibility of some stamp duty on the purchase of a business. There will not be any deductibility for stamp duty so far as it relates to the purchase of a CGT asset (i.e. an asset that is subject to the CGT rules). It would, however, apply to the acquisition of other assets such as plant and equipment and stock in trade, which are not treated as CGT assets but are treated on revenue account.
As an example, Joe Smith is purchasing a business that has a turnover of less than $10 million. Let us say for the sake of argument that the business makes a profit of $2 million per annum and that it has stock on hand of $1 million and plant and equipment of another million dollars. The “goodwill” is (let’s say) $4 million so the total purchase price is $6 million.
In that scenario the stamp duty on one third of the purchase price (the $2 million attributable to stock and plant and equipment) would be a tax deduction for the business in the first year of operation, whereas previously it would have either been capitalised or amortised over five years.