Business taxation changes
Lately, the number of small businesses have been on the rise. Thus, the legislation regarding small businesses has been changing to better suit these businesses. Effective from 1 July 2016, the few key changes that benefit small businesses are:
lower company tax rate changes
instant asset write-off on depreciation
expanded access to small businesses concessions
increased small business income tax offset
1. Lower Company Tax Rate Changes
Firstly, for 2016-2017 income year, company tax rates have decreased to 27.5% from 28.5%, and is applicable to small businesses that have a turnover less than $10 million and operates for 12 full or partial months of the income year. The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies.
Secondly, from 2017-2018 income year onwards, a base rate entity is also eligible for the decreased company tax rate of 27.5% and other small business tax concessions, only if it is a small business entity.
A base rate entity is a company that:
has a turnover less than $25 million i.e. the turnover threshold for 2017-2018 income year, and
operates for 12 full or partial months of the income year
By 2018-2019 income year, the revised company tax rate will progressively apply to all base rate entities with a turnover less than $50 million. From 2024-2025, company tax rate will reduce each year until it is 25% by 2026-2027.
2. Instant Asset Write-offs on Depreciation
Another benefit of the revised legislation is that the instant asset write-off threshold of $20,000 has been extended until 30 June 2018. Small businesses can immediately deduct the business portion of most assets (both new and second-hand) that cost less than $20,000 each if it was purchased;
between 1 July 2016 and 30 June 2018, with a turnover is less than $10 million
between 12 May 2015 7.30pm and 30 June 2016, with a turnover less than $2 million
This deduction can be claimed through the tax returns in the year the asset was first used/installed ready for use.
3. Expanded Access to Small Businesses Concessions
A range of small business tax concessions is available to all businesses with turnovers less than $10 million, effective from 1 July 2016. This $10 million turnover threshold applies to most concessions except for:
the small business income tax offset, which has a turnover threshold of $5 million
capital gains tax (CGT) concessions, which has a turnover threshold of $2 million
Fringe benefits tax (FBT) turnover threshold has also increased to $10 million, effective from 1 April 2017.
4. Increased Small Business Income Tax Offset
Small business sole traders or persons who have a share of net small business income from a partnership or trust can claim small business income tax offset.
The increased small business income tax offsets of 8% (with a limit of $1,000 each year) is applicable to small businesses with turnovers less than $5 million, effective from 2016-2017 income year. The rate increased by 3% from 5% in the previous years. The tax offset will continue to increase to 10% in 2024-2035, 13% in 2025-2026 and 16% in 2026-2027 income year.
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