Small Business Taxation
A small business is eligible for a number of income tax, capital gains tax, GST, fringe benefits tax and superannuation concessions. The business can choose which of these concessions (if any) to adopt.
Definition of a Small Business
A small business for income tax purposes (operating as either a sole trader, partnership, company or trust) is measured on an annual turnover basis. Up to 30 June 2016, the turnover threshold was $2 million.
From 1 July 2016, a business is considered to be a small business where it:
- operates a business for all or part of the income year, and
- has an aggregated turnover less than $10 million (the turnover threshold).
The turnover threshold up to 30 June 2016 was $2 million for all these concessions.
1. INCOME TAX
A small business is eligible for the following income tax concessions:
1.1 Accelerated depreciation for primary producers
From 12 May 2015, primary producers can:
- immediately deduct the costs of fencing and water facilities
- deduct the cost of fodder storage assets over three years.
Primary producers who are small businesses can also claim the $20,000 instant asset write-off.
1.2 Simplified depreciation rules – instant asset write-off
The $20,000 instant asset write-off threshold has been extended until 30 June 2018.
A small business can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased:
- from 1 July 2016 to 30 June 2018, and the turnover of the business is less than $10 million
- from 7.30pm on 12 May 2015 to 30 June 2016, and the turnover of the business is less than $2 million.
This deduction applies to each asset that costs less than $20,000, whether new or second-hand. The deduction is claimed in the year the asset was first used or installed ready for use.
1.3 Deductions for professional expenses for start-ups
From 1 July 2015, small businesses are entitled to certain deductions when starting up a small business. The range of deductible start-up costs includes professional, legal and accounting advice and government fees and charges.
1.4 Small business restructure rollover
From 1 July 2016, small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another.
This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.
1.5 Simplified trading stock rules
A small business does not need to conduct a physical stocktake and instead can choose to estimate the value of trading stock at the end of the financial year to report in the income tax return. The business will need to keep a record of record how they estimated the value of stock, but the ATO does not need to be notified that an estimate of stock was chosen.
This concession only applies if there is a difference of $5,000 or less between:
- the value of stock at the start of the income year
- a reasonable estimate of the value of stock at the end of the year.
If the business chooses not to use an estimate, a full stocktake will need to be conducted with the actual value of stock reported in the tax return.
1.6 Immediate deductions for prepaid expenses
A small business can claim an immediate deduction for prepaid expenses where the payment covers a period of 12 months or less that ends in the next income year.
1.7 Two-year amendment period
A small business generally has a two-year time limit, from the day the notice of assessment is issued, for reviewing an assessment.
1.8 PAYG instalments
A small business has the option to pay as you go (PAYG) by instalments using an amount worked out by the ATO. This saves time in having to work out the amount to pay each quarter. if required, the instalments can be varied on a quarterly basis.
2. CAPITAL GAINS TAX
A small business may be eligible for the following four capital gains tax (CGT) concessions on “active” assets used to conduct the business.
The turnover threshold for the CGT concessions is $2 million (this threshold has not changed).
2.1 15-year exemption
If you are aged 55 or older and retiring or are permanently incapacitated, and you have owned an active business asset for at least 15 years, you won’t pay CGT when you dispose of the asset by sale, gift or transfer.
Amounts from this exemption may be able to be contributed to your super fund without affecting your non-concessional contributions limits.
2.2 50% active asset reduction
If you’ve owned an active business asset, you’ll only pay tax on 50% of the capital gain when you dispose of the asset.
2.3 Retirement exemption
There is a CGT exemption on the sale of an active business asset, up to a lifetime limit of $500,000. If you are under 55, money from the disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.
2.4 Rollover
If you dispose of an active business asset and buy a replacement asset or improve an existing one, you can defer your capital gain until a later year. The replacement asset can be acquired one year before or up to two years after the last CGT event in the income year for which you choose the roll-over.
3. GST
A small business is entitled to three GST concessions. The turnover threshold for these concessions is:
- $10 million from 1 July 2016
- $2 million up to 30 June 2016.
3.1 Accounting for GST on a cash basis
A small business can account for GST on the basis of cash in and cash out during the relevant reporting period.
3.2 Paying GST by instalments
A small business can pay GST by instalments worked out by the ATO. If required, the instalments can be varied each quarter.
3.3 Annual apportionment of GST input tax credits
If a sole trader or a partnership purchases items that are used partly for private purposes, the business can choose to claim full GST credits for these items on the activity statements and make a single adjustment to account for the private use percentage after the end of the financial year.
The ATO does not need to be notified that you are using this concession, but you should keep a record, showing the date it was made and when it took effect.
4. FRINGE BENEFITS TAX (FBT)
The turnover threshold for FBT concessions is:
- $10 million from 1 April 2017
- $2 million up to 31 March 2017.
4.1 FBT car parking exemption
Car parking benefits provided by a small business are exempt from FBT if:
the parking is not provided in a commercial car park; and
the business is not a government body, a listed public company, or a subsidiary of a listed public company; and
either the gross total income for the last income year before the relevant FBT year was less than $10 million, or you were a small business for the last income year before the relevant FBT year.
4.2 FBT work-related devices exemption
From 1 April 2016, small businesses can provide their employees with multiple work-related portable electronic devices that have substantially identical functions in the same FBT year, and all of the devices will be exempt from FBT. This applies to devices that are primarily used for work, such as laptops, tablets, calculators, GPS navigation receivers and mobile phones.
This benefit may be in addition to or part of the employee’s salary or wages package.
5. SUPERANNUATION
A small business may be eligible for these superannuation concessions
5.1 Superannuation clearing house
The Small Business Superannuation Clearing House helps small businesses pay super guarantee contributions for all your employees in a single electronic payment.
If your business has 19 or fewer employees. or a turnover under $10 million you can access this service.
5.2 Contributions to your super fund
You may be able to contribute amounts under the small business capital gains tax (CGT) 15-year asset exemption (up to $1,445,000 for the 2017/18 year) and retirement exemption (up to $500,000) to your super fund without affecting your non-concessional contributions limits.
As mentioned above, the turnover threshold for the small business GGT concessions remains at $2 million.
