Tax Changes For Small Business In 2015: What You Need To Know

The big headline item from this year’s Federal Budget was changes to tax rates and depreciation rules for small businesses. But who qualifies for the discount, and how does it work? Here’s what you need to know.

Boat picture from Shutterstock

Depreciation changes

Under previous depreciation rules, any item a small business purchased valued at more than $1000 had to be depreciated over a number of years (the period varying depending on the item). That value has gone up to $20,000 for any item purchased after 7:30pm AEST on 12 May 2015 (when the budget was handed down. Some important things to note about this change, per the Austtalian Taxation Office’s notes:

  • It only applies to businesses with a turnover of $2 million or less. Larger businesses still have to follow existing rules. Purchases over $20,000 also still fall under existing guidelines.
  • The change only applies through until the end of the 2016-2017 financial year. (It might well be extended in the future, but that’s how it stands now.)
  • There is no limit to how many items can be claimed, but you have to be able to demonstrate the item has a business use. If you purchase a boat and claim you use it to entertain clients, there is likely to be further investigation. Similarly, your business needs to be active and profitable; trying to claim purely because you have an ABN is likely to get you into trouble.
  • The rule ultimately doesn’t change the amount of depreciation claimed or tax paid, just when it happens.

Reduced tax rates and other rule switches

Note that these changes all apply to the 2015-2016 financial year, not the return for 2014-2015 which you will be completing soon.

  • If your business is unincorporated (which applies to sole traders, partnerships and trusts) and has a turnover of less than $2 million, your tax rate will be discounted by 5 per cent, with a maximum of $1000. This will be delivered as a tax credit when you submit your return. That means it reduces what you’ll owe, but you won’t see the money until at least July 2016.
  • For incorporated small businesses with a sub-$2 million turnover, the applicable tax rate will drop for 30 per cent to 28.5 per cent.
  • If you decide to change your business’ legal structure (by incorporating, for instance), you’ll no longer be subject to a capital gains tax charge.

Reminder: For specific tax advice relating to your individual situation, consult a registered professional.

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