The government has introduced quite a few significant changes in the federal budget to ease the tax burden on small businesses including lowering the corporate tax rate, expansion of what constitutes a “small business”, and extensions for star-ups which was introduced as part of the 2015-2016 budget. Let’s examine the top five changes below.
Reduction in Corporate Tax Rates
Over the next 10 years, the government plans on reducing company tax rates to 25%. Effective 1 July 2016, the tax rate of businesses with an annual aggregated turnover of less than $10 million will be reduced to 27.5%. Over time, the turnover threshold will be progressively increased until a reduction is undertaken and the rate reaches 25% in the 2026-2027 income year.
Increase in Small Business Entity Turnover
As stated above, the government will increase the small business entity turnover threshold to $10 million. The current threshold of $2 million will be retained for access to small business capital gains tax concessions. Furthermore, access to the unincorporated small business tax discount will be limited to entities with turnover less than $5 million.
Unincorporated Small Business Tax Discount
The tax discount for unincorporated small businesses will incrementally increase from 5% to 16% over the next 10 years. This summer, the tax discount will initially be increased to 8% and will be extended to individual taxpayers with business income containing an aggregated annual turnover of less than $5 million.
During last year’s budget, an immediate tax deduction was added for asset purchases up to $20,000. This will continued to be retained until the summer of 2017 where further revisions will be made. Small businesses are advised to keep an eye on changes in asset write-offs that will be available in the future.
Simplified Rules for Trading Stock, PAYG, and GST
In order to ease the tax burden on small businesses, the Assistant Treasurer introduced simplified trading stock rules in order to avoid year end stock take, an easier method of paying PAYG installments to help avoid the risk of over or under estimating, and an option to account for GST on a cash basis as well as use ATO generated installments.
Through making these changes, the government aims to encourage small businesses to both grow and innovate as well as make younger individuals “job-ready” without the risk and costs to smaller companies.