Helpful Small Business Tax Tips
The government’s approved its proposed increase to the annual small business threshold to a turnover of up to $10 million from 1 July 2016 (previously only $2 million). Small businesses (sole traders, partnerships, companies and/or trusts) with a turnover of less than $10 million may be eligible for a range of tax benefits including an immediate write-off of assets costing less than $20,000, a 27.5 percent tax rate, simplified depreciation, capital gains tax concessions and accounting on a cash basis.
Broadly, the entity must carry on a business and its annual turnover (excluding GST) cannot exceed $10 million. Turnover includes the annual turnover of certain affiliates and entities connected with the taxpayer. While meeting the $10 million turnover test automatically entitles small businesses to certain concessions such as simplified tax depreciation and trading stock rules. It is important to note that additional eligibility tests apply to claim the small business CGT concessions.
Maximise depreciation deductions
The 2018 financial year will be the second year small businesses can claim an immediate tax deduction for individual assets purchased before 30 June 2018 that cost less than $20,000, when used for income producing purposes and is installed ready for use by the end of the financial year. This measure is due to expire 30 June 2018. The adjustable value of such an asset is depreciable, on that basis, at 30 percent in subsequent years.
For those businesses with a turnover under $10 million, they may consider assessing the useful life of assets costing less than $20,000 and replace them prior to these small business rules ending.
Tax cut for SME’s from 1 July 2016
We encourage our clients to consider taking advantage of a number of year end tax planning opportunities now that the company tax rates are 27.5 percent (down from 28.5 per cent in the previous year) for companies with a turnover of less than $10 million for the 2017 financial year.
Although uncertain the government plans to reduce company tax rates to 25% for certain entitles that meet turnover thresholds by the year 2027.
Review salary sacrifice arrangements
Employees can consider salary sacrifice arrangements under which they forgo their gross salary to obtain either a packaged car for fringe benefits tax (FBT) purposes, or the ability to make additional superannuation contributions.
A flat 20 per cent flat rate applies when calculating a car fringe benefit under the statutory-formula method, regardless of how many kilometres the vehicle travels annually. However, there may still be some tax savings in packaging a car under these rules compared to the cost of funding all your car expenses from your net salary. In addition, under these rules employees who predominantly use a car for work-related travel may be able to obtain tax savings by calculating the FBT paid on the car under the operating-cost method rather than funding their car expenses from their after-tax salary.
Please contact your local McFillin & Partner’s Advisor Tax Agent as to whether such salary sacrifice arrangements would be tax effective to you.
Seeking professional advice when starting a business
From 1 July 2015, the professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the year those expenses are incurred (previously deductible over 5 years). When establishing a new business you should speak to your local McFillin & Partners advisor about claiming professional advice fees as an expense.
Small business restructure rollover relief
From 1 July 2016, small businesses will be able to change the legal structure without incurring any income tax liability when transferring active assets from entity to another. This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.
Business restructuring is complex, you should first speak to your local McFillin & Partners Advisor before starting this process.
Write-off bad debts
Businesses can only obtain income tax deductions for bad debts when various conditions are met.
SuperStream compliance is entering its second year. This means that if you are an employer with 19 or fewer employees you will pay super contributions for yoru employees electronically (EFT or BPAY) and send the associated data electronically. Businesses that only employ directors and have a Self-Managed Super Fund do not need to be SuperStream compliant. To ensure that you are SuperStream compliant, please contact your local McFillin & Partners Advisor.
Note: The contents of the above article are general /informational in nature and not intended to replace professional and tailored advice that fits your unique circumstances.