How will the changes to business taxation have an impact on your business? Andrew Burns and Steven Toth from HLB Mann Judd report.
A number of changes to taxation were announced in the Federal Budget in plans to transition to a lower company tax rate by 2026.
From 1 July 2016 the company tax rate for small businesses – those with an aggregated turnover of less than $10m – will be reduced from 28.5 percent to 27.5 percent.
From 1 July 2017 this reduction will be extended to companies with a turnover of less than $25m and from 1 July 2018 to those with less than a $50m turnover.
The threshold will increase each year until all companies are eligible for the 27.5 percent tax rate from 1 July 2023.
The tax rate for all companies will be reduced to 27 percent from 1 July 2024, then reduced by one percent each year until all companies are taxed at 25 percent from 1 July 2026.
What you need to know if your business is not a company
For small businesses in a structure other than a company, a tax discount will apply to complement the company tax rate reduction.
For the year ended 30 June 2016, individuals in receipt of small business profits as a sole trader, from partnership or distributed from a trust, are eligible for a five percent discount on the tax payable on that profit.
From 1 July 2016 this discount will increase to eight percent. However, the maximum discount which can be claimed will remain at $1000.
This tax discount will only apply to businesses with an aggregated turnover of less than $2m. This threshold will also not be increased over time.
Small business concessions
The threshold for the small business concessions has been increased from $2m to $10m from 1 July 2016.
This increase in the threshold will allow more businesses to apply these concessions to reduce their tax liability.
Existing small business concessions which will now be available to businesses with a turnover between $2m and $10m include:
Simplified depreciation rules, including the immediate write off of assets costing less than $20,000 purchased prior to 30 June 2017 (immediate write off reverts to $1000 from 1 July 2017)
Simplified trading stock rules allowing a business where the value of their stock varies by less than $5000, to estimate the value of their stock on hand at year end without a stocktake
Deductibility of prepaid expenses where the prepayment period is less than 12 months
The ability to choose to account for GST on a cash basis, and to pay quarterly GST instalments as calculated by the ATO
Quarterly PAYG instalments based on the prior year’s notional tax liability rather than based on turnover multiplied by the rate set by the ATO
More generous Fringe Benefits Tax concessions for work-related electronic devices and for car parking
CGT concessions
The turnover threshold of $2m to access the small business capital gains tax concessions will not be increased.
Therefore those businesses with a turnover between $2m and $10m must satisfy the $6m net asset test at the time of the capital gains tax event in order to apply the small business capital gains tax concessions on the sale of a business asset.