Tax break for Small businesses

As part of the 2015–16 Federal Budget, the Treasurer, Joe Hockey, announced that the Government will deliver a tax cut to all small businesses, both incorporated and unincorporated. The tax cuts will be delivered through:

• a tax cut of 1.5 percentage points for small companies; and
• a five per cent tax discount on income tax payable on business income from an unincorporated small business entity.

The Government will reduce the company tax rate to 28.5 per cent for companies with an aggregated annual turnover of less than $2 million. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30 per cent rate on all their taxable income.

NOTE:  Some positive news is that the current maximum franking credit rate for a distribution will remain unchanged at 30 per cent for all companies, maintaining the existing arrangements for investors, such as self‐funded retirees. Note Although the company tax rate will reduce to 1.5 per cent for a small company, it will still be able to frank its distributions at 30 per cent, thereby reducing the top‐up tax payable by shareholders on the cash dividend.  This will also mean that the company will use up tis credits at a faster rate when franking a dividend at 30 per cent rather than 28.5 per cent.

Individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be five per cent of the income tax payable on the business income received from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.  Content obtained from TaxBanter publication.