Federal Budget, small business, startups

We look at some of the key aspects of the 2014 Federal budget and the resulting impact on small businesses and startups

1. Federal budget impact on Small business

The federal budget has impacted small business in the following ways:

a) Lower company tax rate

As part of the budget measures, the government has will cut the company tax rate by 1.5 percent from 1 July 2015. This will bring the current company tax rate of 30 percent down to 28.5 percent, benefiting many small businesses that use a company structure. Businesses with more than $5m in taxable income will not be in a better overall position as they will be required to pay a levy of 1.5 percent to fund the new paid parental leave scheme.

b) Superannuation contributions

Compulsory superannuation contributions for employees will rise from 9.25 percent to 9.5 percent from 1 July 2014. Although the federal government had previously flagged that this increase would be delayed, the superannuation contribution percentage will now be frozen at the new level of 9.5 percent until June 2018.

c) Deficit Levy

A deficit levy of 2 percent will apply to taxpayers who earn over $180,000 per annum. The levy is set at 2 percent of total income from July 2014 and will impact sole traders, partners in partnerships and those who are drawing more than $180,000 out of their business from either salary, dividends or distributions.

2. Federal budget impact on Startups

The federal budget has impacted startups in the following ways:

a) Cuts to programs

The Federal Government has announced that it will be scrapping existing programs that support startups including Commercialisation Australia, which has provided more than AU$200 million in funding to local startups, and the Innovation Investment Fund, which connects startups with venture capital.

It has also announced that it will be replacing these scrapped programs with AU$484.2 million in funding over five years to an Entrepreneurs’ Infrastructure Program.

b) Lowering of the R&D Tax Incentive

With the lowering of the company tax rate to 28.5 percent, the federal government has also announced a corresponding reduction in the R&D tax incentive by 1.5 percent. This lowers the effective benefit on eligible R&D expenditure from 45 percent to 43.5 percent.