Tax Changes Affecting Small Businesses Effective From July 1

The 2016 Australian Government Budget introduced a few changes that affect small businesses from 1 July – and mostly it’s good news!

Reduction in small business company tax rate

The corporate tax rate for small businesses decreases from 30% to 25% over 10 years. From 1 July, this means businesses will pay 27.5% tax, a reduction of 1%.

The tax discount for unincorporated small businesses also increases over 10 years from 5-10%, rising to 8% from 1 July 2016.

Small business threshold up from $2 million to $10 million.

From 1 July businesses with an annual turnover of less than $10 million will be able to claim the benefits associated with being a small business. This affects about 870,000 Australian businesses employing almost half the Australian workforce. These benefits include:

• Easier Pay-As-You-Go tax instalment options
• Small business depreciation provisions
• Simplified trading stock rules
• An option to account for GST on a cash basis
• Some fringe tax benefit exemptions for smartphones, tablets and other mobile devices

Now, these larger businesses will be able to use the same simpler method of paying PAYG instalments. This helps reduce the risk of under- or over-estimations.

Introduced in the 2015 budget, businesses can immediately write off the full cost of business assets costing $20,000 or less bought before 30 June 2017. This applies to any number of items costing less than $20,000.

Businesses with a turnover of less than $2 million have been able to claim this benefit since May 2015, but now so can businesses with a turnover of up to $10 million.

Businesses may be able to avoid an end of year stocktake if the value of the stock has changed less than $5,000. This is likely to be good news to small businesses not looking forward to this annual task. It does, though, raise the question: how do you know if the value of the stock has changed less than $5,000 without doing a stocktake?

Now, like smaller businesses, companies with an annual turnover of $10 million or less can account for GST in the same tax period as they received payments from their clients. They can claim input tax credits for paying suppliers, so helping with cash flow.

Start-up costs for new businesses can now also be tax deductible. These expenses might include professional fees and government charges.

If you are unsure about how the tax changes will affect your business, you should contact a tax accounting professional as early as possible in the new financial year.