When big business become small

A reclassification of what the ATO considers a small business opens up opportunities for more businesses to claim small business tax concessions.

The ATO’s recent announcement that the proposed 2015/2016 budget changes have now become law heralds great news for small businesses.

The changes see a reclassification as to what the ATO now considers a small business.  

While previously there was a $2million turnover threshold to be classified in the small business category, under the new changes the turnover threshold is increased to $10 million. Please note, the $2 million threshold still exists for entities wishing to access the small business CGT concessions.

So once while you may have been considered too large to be considered a small business, these new rules could see you take advantage of a range of small business tax concessions.

This includes access to the much talked about $20,000 instant asset write off, a lower company tax rate and a small business income tax offset.

The $20,000 instant asset write off

Basically, if you buy, install and use an asset prior to 1 July 2017 that costs less than $20,000 you can immediately deduct the business portion in your 2017 tax return.  Assets that cost $20,000 or more will go into the small business asset pool.

While the government announced on budget night plans to extend this tax concession until the new financial year ending 30 June 2018, at the time of writing this legislation had yet to be passed in parliament.  Therefore, unless changed the threshold on immediate write-off of assets will reduce to $1,000 from 1 July 2017. Expenditure can still be pooled and written off over a number of years otherwise.

New Company Tax Rate

From 1 July 2016 the company tax rate for small businesses has been reduced to 27.5%. This represents a tax saving of an extra 1% for small businesses compared to 30 June 2016 and 2.5% compared to medium and large businesses in 2016.

However, should the company pay a dividend to shareholders in the 2016/2017 financial year, the maximum franking credit attached to a frankable distribution is also 27.5%.

Income Tax Offset

The government has also enacted into law, an 8% small business income tax offset (up to $1,000 tax offset per individual tax payer) limited to businesses with a turnover of less than $5 million. It applies only to business income for sole traders, or share of business income for partnerships or trusts. This is to accommodate businesses who use a different structure to run their business than a company.

A small business accounting task

If these changes are something that you think your business can take advantage of please do not hesitate to contact us.