Small business tax breaks: Are you eligible?

June 15, 2017

As part of the 2016-17 Budget, the Australian Government announced an increase to the small business entity turnover threshold from $2 million to $10 million. This means that, from 1 July 2016, more businesses are able to access a range of tax concessions which were previously only available to business entities with a turnover of less than $2 million.

Eligibility

To be eligible for the small business concessions, you must be a ‘small business entity’ in an income year. From 1 July 2016, you are a small business entity if you are a sole trader, partnership, company or trust that operates a business for all or part of the income year, and has an aggregated turnover less than $10 million (the turnover threshold).

Aggregated turnover is generally your annual turnover plus the annual turnover of any business connected with you that is your affiliate.

We have outlined some of the common tax concessions available and how these may apply to your business.

Deductions for professional expenses for start-ups

From 1 July 2015, certain immediate deductions are available when starting up a small business. The range of deductible start-up costs includes professional, legal and accounting advice and government fees and charges.

Instant asset write off

As an eligible small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each. This deduction is available for assets that are new or second-hand, in the year the asset was first used or installed ready for use.

Company tax rate

For companies that meet the criteria of a small business with turnover of less than $10 million, the tax rate is reduced to 27.5% for the 2016/2017 financial year. This is applied at the time of the preparation of the income tax return for the company. It is also important to remember that, to the extent a dividend is declared from a company that meets the small business definition for 2016/2017, the dividend is only able to be franked to the reduced rate. i.e franked to 27.5% and not the previous company tax rate of 30%.

Unincorporated business tax discount

For those operating a business through an entity other than a company (e.g trust, partnership or sole trader), you may be eligible for a tax offset up to $1,000 in your personal tax return. Note, however, access to the unincorporated small business tax discount will be limited to entities with turnover less than $5 million.

Immediate deductions for prepaid expenses

As an eligible small business with turnover of less than $10 million, you are able to claim an immediate deduction for the full cost of prepaid expenses in the year it is paid, where the payment covers a period of no more than 12 months ending in the next financial year (e.g insurance paid in June 2017 covering the period to June 2018 can be fully claimed in 2016/2017). Previously businesses that did not meet the turnover threshold of less than $2 million were required to apportion the deduction across the two financial years.

Simplified trading stock rules

As an eligible small business with turnover of less than $10 million, you may be able to simplify the way you report your trading stock at the end of the financial year. The simplified trading stock rules allow you to estimate the value of your trading stock. You may also choose not to conduct a stocktake if; the difference between your trading stock value at 1 July and a reasonable estimate of the value of your stock at 30 June is $5,000 or less.

If you choose not to use an estimate or the difference between opening and estimated closing stock is greater than $5,000, you will need to conduct a stocktake and account for the changes in the value of your stock per usual.

We can help

If you would like more information about the small business tax concessions and how they may apply or your eligibility to access these concessions, please contact our team on 07 3217 2477.