3-minute refresher to tax changes for small business

21st January, 2016

In last year’s budget some big changes were announced by the Australian government. The federal budget that was delivered in May promised some significant benefits and incentives for small business.

Here’s a 3-minute refresher on the top points for small business owners:

1. $20,000 immediate write-off

  • Small businesses are eligible to claim up to $20,000 for asset purchases. There is no limit to the number of assets that can be claimed; however, each asset purchase must not exceed $20,000 including any installation charges or similar.
  • All small businesses with an annual turnover of $2 million or less are eligible.
  • This new tax rule is only useful to small businesses that are looking to replace or purchase assets for business purposes. The rule only changes the timing of depreciation or tax paid — not the amount.

2. Tax rate reduction

  • For unincorporated businesses (sole traders, partnerships and trusts) that have a turnover of less than $2 million, the current tax rate will be discounted by 5 percent, to a maximum of $1000, given as a tax credit when the tax return is submitted.
  • For incorporated small businesses with less than $2 million turnover, the applicable tax rate will drop from 30 percent to 28.5 percent.
  • This tax rate reduction will reduce the amount of tax to be paid at the end of the financial year for eligible small businesses.

3. Capital gains, fringe benefit taxes and start-up costs

  • For the July 2015 to June 2016 year, small businesses that change their legal structure (for example to an incorporation) will no longer be required to pay capital gains tax. Additionally, all professional fees incurred by a small business for start-up — such as accounting, legal and professional advice — can be claimed in full as a tax deduction.
  • From April 2016, small businesses will be able to claim fringe benefit tax exemption where employees are provided with one or more qualifying work-related portable electronic devices.

For more detailed information on these taxation rule changes, head to the Australian government’s Jobs and Small Business package page.