What the Budget means for small and medium businesses

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Federal Budget Update 2016–17 

What you need to know

  • Tax relief for small and medium-sized businesses with the company tax rate falling to 27.5 per cent
  • Immediate tax deductions given to small businesses in last year’s budget expanded to include entities with annual turnover of less than $10 million
  • Further tax relief for unincorporated small businesses
  • Measures to encourage start-ups and innovation

Small businesses are big winners in this year’s Budget, under the government’s proposed “10-year enterprise tax plan” designed to boost growth, create jobs and drive Australia’s future economic prosperity.

Proposed changes will see the company tax rate fall to 25 per cent over the next ten years while the small business entity turnover threshold will increase from $2 million to $10 million from 1 July, 2016.

The current $2 million turnover threshold will be retained for access to the small business capital gains tax concessions.

That means entities with an annual turnover of less than $10 million will qualify for small business income tax concessions including a lower corporate tax rate and generous equipment write-offs.

If legislated, all businesses with an annual turnover of less than $10 million will have their tax rate cut to 27.5 per cent from 1 July, 2016.

The threshold to access the 27.5 per cent tax cut will progressively increase to ultimately include all companies by 2023/24.

Financial year Threshold
2017/18 $25 million
2018/19 $50 million
2019/20 $100 million
2020/21 $250 million
2021/22 $500 million
2022/23 $1 billion
2023/24 None
Financial year Company tax rate
2024/25 27%
2025/26 26%
2026/27 onwards 25%

In addition to a lower corporate tax rate, businesses with an annual turnover of less than $10 million will also have access to simplified depreciation rules including an immediate tax deduction for individual assets they buy costing less than $20,000, available until 30 June, 2017.

Other concessions available to small business entities include simplified trading stock rules and simplified GST reporting requirements.

Further tax relief for unincorporated small businesses

The tax offset for small unincorporated businesses will also increase over the next 10 years from 5 per cent to 16 per cent, although the existing cap of $1,000 per individual for each income year will remain.

The tax offset applies to income tax payable on the business income received from an unincorporated small business entity. This provides a benefit to unincorporated small businesses which do not receive a reduced company tax rate.

The turnover threshold for small unincorporated entities will also increase from $2 million to $5 million.

What’s next?

The vast majority of changes must be legislated and passed through Parliament before they apply.

The government’s top priority is to see the proposed company tax cuts and personal income tax cuts start on 1 July, 2016, which will put pressure on Parliament to pass legislation quickly.

If you believe you may be affected by the Budget’s changes you should consider seeking professional advice.

A financial adviser can give you a clear understanding of where you stand and how you can manage your cashflow, super and investments in light of proposed changes. An adviser can also ensure you’re not missing out any new benefits you may be entitled to.

If any of these proposals raise questions, concerns or potential opportunities for you, please speak with your financial adviser today, or contact us for an obligation-free discussion today.

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