Small business is undoubtedly the big winner from the 2016–17 Federal Budget.
“Small and medium businesses are driving jobs growth in Australia and must continue to do so.
“From 1 July this year, the small business tax rate will be lowered to 27.5 percent and the turnover threshold for small businesses able to access it will be increased from $2 million to $10 million. This means businesses with a turnover of less than $10 million will also be able to access other tax incentives, including the small business depreciation pooling provisions, simplified trading stock rules, and Pay-As-You-Go Instalments payments option.
“This will mean 870,000 businesses, employing 3.4 million Australians, will have their tax rate reduced, including a 2.5 percentage point cut in the tax rate for up to 60,000 businesses with a turnover between $2 million and $10 million, employing around 1.5 million Australians.”
Scott Morrison, Treasurer, Tuesday 3 May 2016
Those are reassuring words from the Federal Treasurer. Let’s take a look at other changes announced that will affect small businesses in Australia.
What are the new ATO tax rates for 2016-17?
|Tax Rates 2016-2017|
|Taxable income||Tax on this income||Rates|
|$18,201 – $37,000||19c for each $1 over $18,200||19%|
|$37,001 – $87 000||$3,572 plus 32.5c for each $1 over $37,000||32.5%|
|$87,001 – $180,000||$17,547 plus 37c for each $1 over $87,000||37%|
|Over $180,000||$57,547 plus 45c for each $1 over $180,000||45%|
|Compulsory superannuation rate: 9.5%|
The 32.5 percent tax threshold will be increased from $80K to $87K, which will prevent these wage earners moving into the next tax bracket until 2019–2020. It’s important to note that as an employer you’ll need to be using current tax tables to ensure your employees are paying the correct tax rate.
For example, an income earner with a HELP debt will utilise a different tax table to ensure the correct calculation of their payment. As an employer, you need to use the most recent tax scales to make sure that the amount of tax withheld is correct.
All you need to do is to make sure that at all times you are using the latest version of your software so you can concentrate on operating your business – doing what you are best at, doing what you like doing and making money.
What is the compulsory superannuation guarantee rate?
This has not changed from the current 9.5 percent rate. However there has been significant superannuation reform.
As an employer, the most important thing for you to know is that SuperStream’s introduction on 1 July 2016 isn’t an option or a guideline – it’s the law. You must be SuperStream compliant using a solution such as MYOB AccountRight or MYOB Essentials Accounting.
Start planning right now to make sure you’re SuperStream compliant.
What is the new Medicare levy?
The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from the 2015–16 income year.
The increases take into account movements in the Consumer Price Index so that low income taxpayers generally continue to be exempted from paying the Medicare levy.
- The threshold for singles will be increased to $21,335.
- For couples with no children, the threshold will be increased to $36,001 and the additional amount of threshold for each dependent child or student will be increased to $3,306.
- For single seniors and pensioners, the threshold will be increased to $33,738.
- For senior and pensioner couples with no children, the threshold will be increased to $46,966 and the additional amount of threshold for each dependent child or student will be increased to $3,306.
Updating the Medicare levy is taken care of in MYOB online accounting software.
Have any new allowances been introduced?
No new allowances have been introduced, but more items are now accessible for businesses earning up to $10m as discussed above.
Further support will be provided for small businesses to expand and create jobs. Access to a number of tax concessions will be provided by increasing the threshold for these concessions to $10 million, up from the current $2 million threshold. These changes will benefit over 90,000 businesses.
From 1 July 2016 all businesses with annual turnover of less than $10 million will have access to:
- Simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017.
- Simplified trading stock rules, giving them the option to avoid end of year stocktake if the value of their stock has changed by less than $5,000.
- The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.
- Other tax concessions currently available to small businesses, such as fringe benefits tax (FBT) exemptions (from 1 April 2017 to align with the FBT year).
These threshold changes will not affect eligibility for the small business capital gains tax concessions, which will remain available for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test.
Has anything changed with BAS and GST payments?
Small businesses will also benefit from simplified BAS reporting requirements.
From 1 July 2017, all small businesses with less than $10 million turnover will be able to easily classify transactions, and prepare and lodge their BAS. This simpler approach means that small businesses can work with their tax professionals on growing their business, not filling in forms. A trial of the new simpler reporting arrangements will commence on 1 July 2016.
Your up-to-date MYOB software takes care of all your BAS and GST needs.
Your Federal Budget action list
- Make sure you are ATO SuperStream compliant by 30 June 2016.
- Subscribe to MYOB online accounting software. Or, if you’re already using accounting software, make sure you’re using the latest version. You can check here.
- Make sure you have set up your employee details correctly i.e. selected the correct tax-free threshold in your accounting software.
- Make sure that additional superannuation payments are set up correctly (i.e. are the contributions meant to be before tax or after tax).
- Check whether you can now take advantage of the $20,000 asset write-off.
If you’re already using accounting software, make sure you’re using the latest version. If you use MYOB you can check here.
If you don’t use accounting software, ensure you stay compliant with the latest tax changes. You can subscribe to MYOB online accounting software.