Budget changes will reduce compliance costs

Budget 2005 included a range of improvements to the business environment affecting small to medium-sized enterprises (SMEs). Small Business Minister Rick Barker summarised the changes:

Depreciation

Aligning depreciation rates more closely with the useful life of assets. A double declining balance method has been announced, so an asset with a 10-year economic life will be written off at 20 per cent of its diminishing value. For equipment such as laptops, that will mean a 25 per cent increase in the allowable depreciation rate to 60 per cent a year.

The threshold for low value assets has been increased from $200 to $500.

Fringe benefit tax changes

Many SMEs need no longerfile returns or pay FBT becauseof the increased threshold of $5000a business tool.

The minimum value thresholds applying to unclassified fringe benefits have also been raised to reduce compliance costs. The employee minimum value threshold will go up from $75 to $200 a quarter and the employer threshold from $450 a quarter to $15,000 a year. This will reduce compliance costs by reducing the need to measure and account for FBT for minor benefits.

Payroll agents will be paid an allowance to manage the payroll for the first five employees of all businesses, reducing the compliance overhead for many small businesses.

Alignment of GST and provisional tax payment dates will reduce the number of payment dates.

Businesses will also be allowed to calculate their provisional tax payments based on their GST returns, which will bring into alignment their cashflow and tax payment requirements. It will also make compliance and calculations easier.

Equity investment in SMEs will be encouraged by changes to rules governing access to tax deductions for research and development expenditure where companies bring in new equity investors after their initial development stage.

Non-tax announcements

* $9.9 million to develop an improved Government portal - biz.org.nz (link below) - allowing easier access to all Government services.
* $4.45 million over the next three years for carbon tax mitigation, including pilot grants, training and an education package to help energy-intensive small and medium-sized enterprises take up energy-saving technologies to offset the tax.
* $5.6 million to Project Collaboration, an initiative launched last year to better match the basic business skills and management training needs of SMEs with the organisations that provide it.
* An additional $6.62 million on mentoring for small business and business advisory boards, as recommended by the Small Business Advisory Group.

Auckland Chamber of Commerce chief executive Michael Barnett said he thought the measures would make a difference to SMEs.

"I think they're all positive. Many would say the immediate benefit was hard to find but I think most will see, in the medium term, there are some gains to be made."
There was some good "tidy-up stuff" around the fringe benefit tax, and the biz.org.nz website and the boost to mentoring schemes would be useful resources.

"The reality is the Budget was done in an environment of a falling economy and I think businesses should take some messages from that," Barnett said. "If we are going into a slowing economy, businesses need to become an environment of best practice themselves.

"At the end of the day, [Finance Minister Michael] Cullen has been prudent and he's saying that in a slowing economy business should also be prudent."

SMEs were unexpectedly caught in the net of the voluntary workplace savings scheme. Businesses with fewer than five staff have not been excluded from the requirement to offer the KiwiSaver scheme.

Alasdair Thompson, of the Employers and Manufacturers Association, believes small employers will see their inclusion as "just another burden".