Many businesses benefited from the budget. The key changes are:
Change in classification of small business
Businesses were classified as small business if the turnover was under $2 million annually and hence were able to access various tax concessions. The budget has increased this threshold to $10 million, effective from 1 July 2016. This is a welcome increase, as the change to this threshold is overdue for many businesses where there is high turnover but low margins, thus lower profits.
These changes will now allow more businesses access to small business tax benefits that weren’t previously available, including:
- Immediate write-off of assets costing less than $20,000 until 30 June 2017 (reducing to $1,000 thereafter)
- Simplified trading stock rules where changes are less than $5,000
- Accelerated depreciation rules
Change in Corporate Tax Rate
Last year the Government reduced the tax rate from 30% to 28.5% for small business companies with turnover of less than $2 million (effective from 1 July 2015). This year there are further reductions down to 27.5% for small business companies with turnover of less than $10 million, from 1 July 2016.
For companies with turnover of more than $10 million, there will be tax savings too, but only gradually. The Government will increase the threshold from $10 million to $25 million in 2017/18, $50 million in 2018/19, and to $100 million in 2019/20. This will allow more companies access to the lower rate of 27.5% but in an extended timeframe.
The threshold will increase every year until 2023/24, where the final tax cut for all businesses to 25% will be in 2026/27 income year.
The above changes can be used as a planning tool for your business, please contact MJJ Accounting and Business Solutions to discuss these further and how they affect you.
Unincorporated small business tax discount
For small businesses that are not companies, the Government proposes to extend the unincorporated small business tax discount.
From 2016-17, the discount will be available to business with aggregated annual turnover of less than $5 million, up from the current threshold of $2 million. The discount on tax payable on business income will be increased to 8 per cent, up from the current 5 per cent, but the maximum discount available will remain at $1,000 per annum.
Over the next decade it is proposed to further expand the discount in phases to a final discount of 16 per cent, with the existing $1,000 maximum discount per individual for each income year to remain.