Company Tax Relief

[ it's on its way for SMEs ]
by Michael Garrone Published

On Friday, the government struck a deal with crossbench senators paving the way for a reduction in the company tax rate for taxpayers with an aggregated turnover of up to $50 million.

With an estimated cost of $24 billion over 10 years, the changes are designed to encourage economic activity and employment from small to medium businesses.


Company tax rate reduction

The reduction in the company tax rate will occur progressively over a 10 year period starting in the 2016-17 income year. The first phase of the reduction will occur as follows:

Income YearTurnover Threshold
<$2m<$10m<$25m<$50m>$50m
Existing Rates28.5%30%30%30%30%
2016-1727.5%27.5%30%30%30%
2017-1827.5%27.5%27.5%30%30%
2018-1927.5%27.5%27.5%27.5%30%

Small business entity concessions

With all the media reports focused on the company tax cut its easy to miss some of the other measures in this bill that support small business. From 1 July 2016 the definition of a small business entity [SBE] will be amended to include all entities with an aggregated turnover of less than $10 million [previously $2 million].

The following concessions will also be available to entities with an aggregated turnover of less than $10 million:


1. Immediate write-off for assets costing less than $20,000 each

This much publicised concession allows you to write-off assets costing less than $20,000 rather than having to depreciate them over their effective life. This concession is due to end on 30 June 2017, so if you are eligible you will need to get in quick to take advantage of this concession.

2. Simplified depreciation for other assets 

For assets not eligible for immediate write-off this concession allows you to pool eligible assets together and depreciate the pool at 15% for 1st year assets and at 30% for assets purchased in prior years. These depreciation measures are very generous and will result in larger up-front depreciation claims for most businesses.

Another benefit of the simplified depreciation is that the purchase date is ignored for the purpose of calculating depreciation so you get a full year of depreciation in the year of purchase.

[For example, a $100,000 piece of equipment purchased on 1 June 2017 would get $15,000 of depreciation in the 2016-17 year and $25,500 in the 2017-18 year. Previously you would only receive 1 month’s depreciation in the year of purchase and most likely at rates lower than 30% ]

3. Prepayments up to 12 months

Ordinarily business taxpayers are required to apportion prepaid expenses over the period to which they relate. This concession allows small SBEs to get an immediate deduction for prepayments of up to 12 months. This is a great tax planning tool for many taxpayers that has been out of the arsenal since 2000.

[ For example, prepaying 12 months interest on a business loan in June 2017 will now get an immediate tax deduction in your 2017 tax return ]

4. Amendment period reduced from 4 years to 2 years 

While probably not widely appreciated the ATO can only amend an assessment for up to 2 years when you qualify as a SBE. The downside of this concession is that it also means taxpayers are locked into their own tax positions and cannot later ask for a refund outside of the 2 year period.

[ For example, a SBE company lodges its 2017 tax return on 30 September 2017. The ATO and the company have until 30 September 2019 to amend the tax return to increase or decrease tax payable ]

5. And there’s more:

(i) The Small Business Restructure Rollover will be available to enable restructure of existing family groups;

(ii) Start-up costs in setting up your business can be deducted up-front rather than deducted over 5 years;

[ This is not an exhaustive list and there are a number of other areas where the SBE concessions come into play with further concessions ]

Importantly, the new $10 million turnover threshold does not apply to the small business capital gains tax concessions. This threshold remains at $2 million.


Summary

It’s clear that these changes are generous and aimed directly at the small to medium business sector of the community. The changes present quite a few tax planning opportunities for eligible businesses.

If you have any questions about how this affects your business please contact us at 07 3193 3000.

Michael Garrone
read more by Michael Garrone

Michael is our Tax Specialist Director as well as the head of our business advisory niches of Building and Construction and Property.

With Michael's extensive experience and a real interest in these niche areas he is able to provide practical business and tax advice that is unique to the Building and Construction and Property industries. His tailored advice helps guide these businesses through start-up phase to succession and sale. Michael has many years’ experience in solving complex problems involving corporate tax, restructures, international taxation, Capital Gains Tax and GST. 

Michael also has a strong background in self-managed superannuation and is an authorised representative of superannuationDEPOT. In this area Michael provides strategic advice on SMSF structures and in particular limited recourse borrowing arrangements. Through this diverse experience Michael has developed expertise within a wide range of industries including building and construction, property, professional services (legal, engineering & finance), technology and software and manufacturing.

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