This year, the biggest tax news for small businesses was the extension of the $20,000 write-off, up from $1000 in previous years. In addition, the company tax rate for small businesses has decreased and more businesses are now eligible for most small business tax concessions. We take a look at all of these changes and more.
In a bid to grow jobs and spur local innovation, the government has been providing relief for small business owners in the 2016–17 income year. This means there are new tax benefits available now that you might not have been aware of. Here are the main tax changes you need to know about before completing your 2017 tax return.
Under previous depreciation rules, any item a small business purchased valued at more than $1000 had to be depreciated over a number of years. During the last two financial years, that value has gone up to $20,000. However, the rules are different depending on the size of your business.
For businesses with a turnover of less than $10 million, you may immediately write-off any item purchased between 1 July 2016 and 30 June 2017. For businesses with a turnover of less than $2 million, you may immediately write-off any item purchased from 7.30pm on 12 May 2015 to 30 June 2016.
There is no limit to how many items can be claimed - even if they cost $20,000 each. (The $20,000 cap is for individual expenses, not all purchases combined.) Obviously, you must be able to demonstrate that the items have a legitimate business use if the ATO comes knocking. (Stocking up your wine cellar to "entertain clients" probably isn't going to pass muster.)
According to the ATO, the threshold reduces to $1000 from 1 July 2017. So if you're planning any sub-$20,000 work purchases, do it before the end of the month! For more information You can read our complete guide on how to take advantage of the $20,000 Small Business Tax Break here.
For the the 2016–17 income year, a range of small business tax concessions became available to businesses with turnover of less than $10 million. Previously these concessions were only available to businesses with a turnover threshold of $2 million.
Businesses with turnovers between $2-$10 million are eligible for most small business tax concessions, but there are a few exceptions, which we've listed below:
- The small business income tax offset has a $5 million turnover threshold from 1 July 2016.
- The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.
- The turnover threshold for capital gains tax (CGT) concessions remains at $2 million.
You can see what what small business tax concessions are available to you on the ATO's website.
Reduced tax rates
During the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate. Here's some additional info from the ATO website:
The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate.
The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.
Research and development tax offset changes
If you're small business plays in the SMB space, you may be able to claim up to $100 million of R&D expenses. Businesses with less than $20 million in annual revenue are eligible for a 45% refundable tax offset.
Eligible expenses include spending on research and development, the cost of transforming goods or materials during R&D, and for the decline in value of assets during R&D. Head to the ATO website for more details. There's also an official R&D tax calculator to work out how much you can claim.
Small business income tax offset changes
Small business sole traders can claim the small business income tax offset for the 2016–17 income year. The offset is also available if you have a share of net small business income from a partnership or trust. The ATO will work out your offset based on amounts shown in your income tax return.
Here are the details, courtesy of the ATO:
- the small business income tax offset increased to 8%, with a limit of $1,000 each year
- the offset applies to small businesses with turnover less than $5 million.
The tax offset increases to 10% in 2024–25, to 13% in 2025–26, and to 16% from the 2026–27 income year. You can out more about the Small business income tax offset here.
If you’re unsure what you can claim, visit the ATO’s website, call the ATO or check with your tax adviser.
It can be hard to keep on top of all the various tax breaks and incentives small and medium businesses are eligible for. There are a lot of them. From deducting your stationary to grants for safety equipment. Here are a few other tax breaks and incentives your business might benefit from.