New Tax Concessions For Small Business In Australia

What’s New For Small Businesses

New Tax Concessions For Small Business In Australia

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply for your 2017 tax return.

The changes are:

  1. Expanded access to small business concessions
  2. Increased small business income tax offset
  3. Company tax rate cut for small businesses
  4. Simpler depreciation rules – instant asset write-off

Expanded Access To Small Business Concessions

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with a turnover of less than $10 million (the turnover threshold). Previously, the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016 (available to individuals)
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

Increased Small Business Income Tax Offset

From 1 July 2016, an individual may be entitled to a tax offset for the tax payable on their small business income. The income must be earned by a sole trader, partnership or trust that is a small business entity.

From the 2016–17 income year, the small business income tax offset:

  • increased from 5% to 8%, with a limit of $1,000 each year
  • applies to small businesses with a turnover of less than $5 million (previously $2 million)

The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.

Company Tax Rate Cut For Small Businesses

The small business company tax rate has been reduced from 28.5% to 27.5% for the 2016–17 income year. Companies with a turnover of less than $10 million are eligible for this reduced rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the reduced company tax rate.

The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.

If you lodged your 2016–17 company tax return early:

  • If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
  • If your turnover is from $2 million to less than $10 million, you will need to review your tax return and lodge an amendment if required.

Instant Asset Write-Off Extension

Australian small businesses can continue to purchase new or second-hand equipment costing up to $20,000 and write it off immediately by claiming a full deduction, rather than claiming depreciation over a number of years.

The period in which small business entities can access this instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.

With the change to the definition of “small business entity”, more Australian businesses are now eligible for this instant asset write-off – all businesses with a turnover of less than $10 million are now eligible.

Multiple claims can be made.

This is a great opportunity for small businesses looking to make capital investment decisions to claim an upfront deduction for the cost of business assets.

If you are not clear about how the recent changes for small businesses apply to you or your business, you should contact us on 07 3188 5627.

Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.

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