Immediate Deductibility for Professional Expenses

Small businesses were some of the biggest winners in the 2015-2016 Federal Budget, with the Federal Government announcing a: “$5.5 Billion Jobs and Small Business package”. The package provides support to small businesses by delivering a number of targeted measures and tax benefits. (see taxpayer.com.au)

The hard working individuals operating Australia’s small businesses are the engine room of our economy. Their innovative and entrepreneurial spirit will drive Australia’s economic future. These were the headlines post release of the 2015-2016 Australian Federal Budget. (see budget.gov.au/2015-16)

The measures announced were put in place to make it easier for small businesses to do business and help them to ultimately invest more, grow more and employ more.

One of the key measures is the ability for small businesses to deduct their professional expenses incurred as part of their start-up costs immediately rather than over a five-year period (as previously required by Section 40-880 of the Income Tax Assessment Act 1997). This applies to all businesses with a turnover of less than $2 million per year.

Many business people need the services and advice of lawyers and accountants when they start a business, to ensure that their business commences from a legally and financially sound position. The ability to immediately deduct these costs will allow more money to be invested in growing the new business.

Small business owners only need to record the payment as an expense and keep the requisite receipt from the supplier in question in the normal way. GST on the item can be claimed back on the BAS and at year end the expense will be claimed in one foul swoop in the entity’s profit and loss account and income tax return.

The specific measures announced in the 2015-2016 Budget were that a start up company, trust or partnership would be allowed to immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. This is important for you, your clients and ours with start up businesses incurring such expenses post 1 July 2015.

In short, if your clients have professional costs related to starting a small business, such as costs for legal and/or accounting advice, they can deduct them in the financial year you incur them (rather than writing off the costs over five years).

In conclusion, it is expected that these measures will encourage small business to increase capital investment and focus on entrepreneurship and growth, which is hoped will translate to improved productivity in the broader economy.