-  3193 3000
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 Year||Turnover Threshold|
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:
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.
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% ]
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 ]
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 ]
(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.
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.