TAX CHANGES FOR SMALL BUSINESS – UPDATES

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Instant deductibility threshold extended

Budget 2017-18 has extended the instant deduction for depreciating business assets costing less than $20,000 until 30 June 2018.

Please note that this provision only lets small businesses to claim a tax deduction earlier. It does not offer any additional tax deduction measured over the life of the asset.

With the extended definition of small business, businesses with group turnover under $10 Million can benefit from this provision for assets bought after 1 July 2016.

Tightening of small business Capital Gains Tax concessions

There are a number of concessions available to small businesses that can defer, reduce or remove liability to Capital Gains Tax.

The government has announced changes to the rules that will limit the concessions to assets that are used by a small business or ownership interests in a small business. This will prevent the concessions applying to non-business assets owned by an entity that carries on a small business.

It will also prevent structuring so that ownership interests in larger businesses pass the eligibility tests.

The extended definition of small business does not apply to the Capital Gains Tax concessions. The existing tests of group turnover under $2 Million or group assets under $6 Million still apply.

Payments reporting extended to couriers and cleaners

Taxable Payments Annual Reports currently have to be lodged by businesses in the construction industry.

Businesses have to lodge annual reports with the ATO providing details of payments made to contractors.

This requirement will be extended to the courier and cleaning industries from the 2018-2019 financial year, with the first annual reports due in August 2019.

Small Business Entity definition changed

As already mentioned, the Government has managed to pass the extended definition of small business. The change applies to the current financial year (from 1 July 2016).

If your business has a group turnover under $10 Million you can benefit from most Small Business Entity concessions. These include the simplified depreciation rules, the $20,000 immediate deduction limit, the immediate deduction for prepaid expenses, and accounting for GST on a cash basis, among others.

The extended definition of small business does not apply to the Capital Gains Tax concessions, and nor does it apply to the Small Business Income Tax Offset. The Small Business Income Tax Offset effectively provides a tax cut to unincorporated businesses with a group turnover under $5 Million.

Company tax rate reduced

The Government has also managed to pass the reduction in company tax rate to 25% by 2026-27. However, they were forced to amend the original plan in order to get the legislation through parliament.

Larger companies and companies that do not carry on business (such as investment companies and “bucket companies”) will continue to pay a 30% rate of tax.

The tax rate reductions will be phased in:

From 1 July 2016 to 30 June 2024 the reduced company tax rate will be 27.5%. In 2016-2017 it will apply to companies with group turnover under $10 Million. In 2017-2018 it will apply to companies with group turnover under $25 Million.

From 2018-2019 it will apply to companies with group turnover under $50 Million.

  • In 2024-25 the reduced company tax rate will become 27%.
  • In 2025-26 the reduced company tax rate will become 26%.
  • And from 2026-27 the reduced company tax rate will be 25%.

From 2016-17 (the current financial year) dividends paid by a company can only be franked at the rate of tax applicable to that company. For example, Dividend paid by small business entities in the 2016/17 income year now attract a franking credit of only 27.5%.

Super Contribution

Please note that the super contribution is now limited to $25,000.00 per person per annum. Clients should remember to adjust their salary sacrifices arrangements if applicable.