Startup costs to be written off immediately

Wednesday, May 13, 2015

The budget has cleared the way for startup companies to be able to immediately deduct the costs of starting their businesses, rather than having to write these off.

The government confirmed that the new plan, which is part of its “Jobs and Small Business” package revealed in the budget, is aimed at giving small enterprises a boost.

From July 2016, new companies will no longer have to wait for five years before writing off startup “professional costs”, and business registration will be streamlined with a single online registration site.

“Many people need the advice of lawyers and accountants when they start a business. This can be expensive and drag on cash flow. Allowing these costs to be deducted immediately will allow more money to be invested in growing the new business.”

The announcement also says small business owners will be able to change the legal structure of their business without incurring a CGT liability. “This will reduce some of the complexity of starting a new business and provide business owners with more flexibility.”

It also announced that “obstacles” surrounding crowdsourced equity funding will also be cut in an effort to make accessing that funding easier.

Consultation is promised over coming months on the incumbent framework for the establishment and regulation of corporations. “The consultation will investigate whether some of the regulatory requirements can be removed or relaxed to reduce compliance costs and make it easier for small businesses to innovate, grow and create jobs.”

No CGT when changing business structures

The budget has confirmed that small businesses with an aggregated annual turnover of less than $2 million will be allowed to change legal structure without attracting a CGT liability at that point.

CGT roll-over relief is currently available for individuals who incorporate but all other entity type changes have the potential to trigger a CGT liability. The measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established. The government gives the example of a sole trader changing their business structure to a trust, in which case CGT roll-over relief will be available.