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Small Business Incentives

There were a number of incentives to small business which were announced by the government in the recent Federal Budget which small businesses can take advantage of.  Please note, a small business is classified as having an aggregated turnover of less than $2 million per annum.

Accelerated depreciation on purchases up to $20,000.

The small business instant asset write off has increased from $1,000 to $19,999.  Hence an asset purchased after 12 May 2015 by a small business can be immediately deducted if the value of the asset is less than $20,000.  For example, a small business purchases a piece of equipment for $5,000 (GST exclusive).  Normally this asset would be depreciated given the value is greater than $1,000.   This same asset can be immediately depreciated creating a deduction of $5,000.

Small Business Tax Cuts

  • Companies

Small businesses which are operating through a company will see a reduction in the corporate tax rate from 30% to 28.5% commencing for the 2016 tax year.  Companies which are not classified as a small business will continue to be taxed at 30%.

  • Unincorporated entities

Small businesses which are operating in a partnership, trust or sole trader will receive a 5% tax discount on the income tax payable on business income derived.  The discount is capped at $1,000 per individual.  For example, a sole trader generates a net profit of $70,000.  Under current law the sole trader would pay tax of approx. $14,000.  Based on the proposed tax discount, the sole trader will receive a 5% reduction in the tax amount being $700 (5% of $14,000), therefore paying only $13,300 tax.

These small business tax cuts are to take effect from 1 July 2015 (2016 financial year).

Immediate deduction for professional costs setting up a business

Generally the professional costs associated with starting up a business (eg. lawyers, accountants, entity set-up costs, etc.) are deductible over five years.  From 1 July 2015, these will now be immediately deductible to allow more money to be invested in growing the new business.

CGT (Capital Gains Tax) relief for changes to small business structure

Small businesses will be able to change their legal structure without triggering an immediate capital gain (eg. from a sole trader to a trust).  This provides small businesses with the opportunity to revisit structures that may have been appropriate at the time of start-up but may no longer suit their current needs.  The expected start date of CGT roll-over relief is 1 July 2016.

If you have any queries with the above information, please do not hesitate to contact us.

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