KUMI TAGUCHI:
Bruce Billson, the Minister for Small Business. Bruce thanks so much for joining us this afternoon.
MINISTER BILLSON:
Kumi, great to be with you and your listeners.
KUMI TAGUCHI:
Ok so $20,000 uncapped – just tell us how this would work. Give us a scenario say for someone who is setting up a construction company, a small business building, they want to buy a ute. Can they technically use that 20,000 grand to buy a car?
MINISTER BILLSON:
They can as long as the transaction value is under $20,000 and they are actively trading and the purchase is work related.
What the announcement provides for is about 96% Kumi, of all the businesses operating in Australia have an annual turnover of less than $2 million. About one-third are incorporated.
The rest might be a sole trader, an independent contractor, a partnership or operating though a trust. They can make a purchase of an asset or a piece of plant or equipment that is work related for their actively trading business. T
hey can, for each and every transaction, they can immediately write-off those purchases that cost less than $20,000 and if there is more than one they can write-off more than one.
KUMI TAGUCHI:
So they could basically each day be spending up to $20,000 and getting that back?
MINISTER BILLSON:
I am sure your listeners that are in small business would think that would be spectacular if they were able to do that but each day the money does not come back, each day they may make a purchase within their financial capability - mindful that there is a turnover cap of $2 million.
If you and I Kumi were running a cafe, we might invest in a new coffee machine. They are about $16-17,000, maybe a new fridge, some kind of an oven or something like that. If each of those transactions in our business is under $20,000, we can instantly depreciate them.
That takes account when you lodge your annual business statement. We would have to have some income and we can offset any tax we would pay on our profit by expensing those purchases.
You still need income, you still need to be able to finance the purchases and what it does – it enables you to treat those purchases as an expense when it comes to your end of year reporting.
KUMI TAGUCHI:
How is this going to be monitored? Are you going to see a lot of people suddenly starting to register as sole traders to try and take advantage of this?
MINISTER BILLSON:
The current arrangements provide for differing rates of depreciation so the concept of being able to immediately write-off a business expense is not uncommon, it is quite familiar to people involved in businesses.
They need to be actively trading, so if any of your listeners have a business idea and they want to pursue that ambition and create a livelihood opportunity for themselves and others then certainly - go ahead, register an ABN, actively trade in your business and where you are making those work related business purchases then the accelerated depreciation is available for you.
KUMI TAGUCHI:
Ok and if you are listening in and you have a small business or you are thinking of starting a new business feel free to call us, 1300 222 702. We would love to hear from you if you have any questions around this. We are speaking with Bruce Billson the Federal Small Business Minister.
Minister, Joe Hockey said today that he hoped that this would breed a whole new generation of entrepreneurs. Entrepreneurs you often think have to have a bit of cash to start off with. How do you balance that out?
MINISTER BILLSON:
This is not the only measure the Government has been pursuing. It is the next step, Kumi in our plan to energise enterprise.
We have been getting rid of needless red tape and compliance burden that stood in the road of enterprising people. We have been working hard to make sure the competitive environment is fair and healthy so a small business that is efficient has every opportunity to succeed.
Access to finance is important, you are right. People would need some resources or they may choose a business that has a moderst upfront capital investment. It might be all about their talents, the services that they can provide or even increasingly Kumi, it may be making use of new technology.
We are also seeing more women than blokes creating businesses at the moment. There is a real wave of entrepreneurship.
We are wanting to support that. Put fuel, if you will, in the engine room of the economy to boost jobs and economic growth and if people have a business idea or some ambition, we are trying to translate that into action with the measures that were announced in the Budget last night.
KUMI TAGUCHI:
We are talking about this $20,000 tax rate that was of course announced in the Budget last night. We are speaking with Bruce Billson the Federal Small Business Minister.
We have Nick from Narrabeen on the line who has a question. Does the tax break apply to second hand cars or just new? Nick good afternoon.
CALLER:
Good afternoon. How are you?
KUMI TAGUCHI:
Great thanks.
MINISTER BILLSON:
Hi Nick yes it does. The good news if you are buying a demonstrator or a second hand vehicle and that is a purchase of a new asset to your business - it does not have to be brand spanking new.
As you know, many in business are buying equipment and plant from others, that is all well within the scope of this very important measure.
CALLER:
And do they have to be commercial vehicles or can they be passenger vehicles?
MINISTER BILLSON:
As long as you can show it is work related Nick. Perhaps if you were a photographer or something like that a small Mazda might be what you need but if you are a tradesperson of course you would not expect a sports car to be work related.
It really relates to the kind of business that you are in and like the current tax law Nick, it needs to be business related so it depends very much on the type of business that you are in and the extent to which it is a credible purchase given what your enterprise is.
CALLER:
Very good.
KUMI TAGUCHI:
Ok thanks, Nick.
Minister we spoke about maybe an influx of people trying to get an ABN, register their businesses, be entrepreneurial – does the Department have the capacity to deal with that influx of applications? And are they going to be able to help with information for anyone who wants it?
MINISTER BILLSON:
Yes Kumi very much so. In fact, one of the less reported measures in the Budget package last night was around streamlining that process, making sure that whole business registration and formation process is made easier.
If you and I were thinking about that café I mentioned earlier Kumi and went to an accountant or a lawyer to get some advice about the best business structure for our ambitions, we previously would have to write off that expense over 5 years. That is ridiculous. We need that advice now. We want to act on it now. So that is also instantly able to be treated as an expense and that is just one of the other supportive measures that are part of this comprehensive package.
KUMI TAGUCHI:
We have Jenny on the line from Cronulla. Jenny what did you want to find out about today?
CALLER:
I was just confused. I am about to enter a pre-existing small business that I am going to purchase and I was under the idea that all purchases made to do with the business at some point were tax free and I know it was $6000 and $10,000 and maybe $20,000 now, but I just always thought that anything you bought towards the business had a tax free component and a lot of people are hearing this $20,000 thrown around. But if you spend a whole $20,000 it is apparently $1800 the tax free component, so it is not the biggest thing.
I was hoping for some clarification.
MINISTER BILLSON:
Not quite right Jenny and I hope it is a beautiful day at Cronulla. There is two separate things that you have combined together there.
If you are running a business and you purchase consumables for your business, the GST in not applicable or if you do pay it you get it rebated as a business input - so that is something quite separate.
Here this is about the purchase of an asset and that asset then gets treated in your accounts as an expense and therefore, just say you and I were running a business, we made $100,000 profit, we bought two coffee machines at $15,000 each – we could write down our profit from $100,000 to $70,000. That is what the instant depreciation provides for and then the reduced tax rate would apply to the $70,000, not the $100,000.
At the moment other assets have, and I will not get into the technical detail, but as a small business you can bundle them and write them off over 4 or 5 years. If you are a bigger business, some of those assets you might have to depreciate over as much as 30 years.
We are saying for a small business with under $2 million in turnover, those purchases under $20,000 you can treat them as an expense in the year that you have purchased them. That is what the measure is about.
KUMI TAGUCHI:
Thanks Jenny.
[Traffic report]
We are going to go back to Bruce Billson, the Federal Small Business Minister. Bruce thanks so much for joining us this afternoon.
We have just got one more question from someone who has texted in. Susan wanted to know, can she upgrade her printer and her laptop and back up hardware or is this only for new assets?
MINISTER BILLSON:
No she can do all that. That is a legitimate purchase of business equipment and we would encourage Susan to do so.
What it is really doing Kumi is saying to enterprising people, if you think there is a purchase that you are in a position to afford and then you want the cash flow benefit of being able to write the costs off immediately as an expense, get amongst it, go ahead and make that purchase.
It was like when I visited an auto-electrician earlier this morning. He was talking to me about being really keen to purchase a new hoist and diagnostics equipment for the cars that he services. He is now really energised and really keen to get on with that because of the measure we announced last night and that kind of enthusiasm is what we are trying to provide a catalytic boost for by way of this very important small business package.
KUMI TAGUCHI:
Ok and we will just take one more call. Lots of calls coming in here today about this $20,000 tax break.
Paul from the Blue Mountains good afternoon.
CALLER:
Hi, how are you?
MINISTER BILLSON:
Hi Paul how are you?
CALLER:
Not too bad.
MINISTER BILLSON:
Good.
CALLER:
Very, very few vehicles are available under $20,000 these days. If there is something more than 20,000 grand can you write-off the first $20,000 immediately?
MINISTER BILLSON:
No. The whole purchase has to be under the $20,000.
We had to make sure we could do what we could within the Budget parameters that we had. I know Paul like you, I have got many other ideas of how we could go further, but we wanted to do what we could afford and what was sensible and what would make a real difference now.
In the case, the example that you provided, those normal asset pulling arrangements would apply if you were a small business. That is 15% depreciation in the first year and then 30% and 30% and so on in the years that follow. That would apply if the purchase is over $20,000.
CALLER:
It would certainly help if the first $20,000 was set to be…it would be the equivalent deduction and costs and savings would it not?
MINISTER BILLSON:
An interesting idea. One that we looked at. Again though, that would have introduced an even greater expense.
I am pretty thrilled we were able to find $5.5 billion for this measure. I have got a few ideas about how I would like to take it further. Yours is one of those Paul, but we have got to do a bit more Budget repair work to extend the idea further and increase the size of the businesses that could perhaps take advantage of these measures.
KUMI TAGUCHI:
A lot of calls coming in today. Bruce Billson, Federal Small Business Minister. Thanks so much for chatting to us this afternoon.
MINISTER BILLSON:
Kumi it has been great to be with you and best wishes to all those enterprising men and women that are in your listenership.
KUMI TAGUCHI:
Thanks so much.