This is a good budget for small businesses.

Effective 1 July 2016 the small business entity turnover threshold will be increased from $2m to $10

This will allow more business entities to gain access to the small business concessions, such as:

  • simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 (from 30 June 2017 this reverts to the normal $1,000 level).
  • simplified trading stock rules – businesses can avoid an end of year stocktake if the value of stock has changed by less than $5,000
  • simplified PAYG instalments (calculated by the ATO) removing the risk of under or over estimating PAYG installment
  • simplified GST accounting – the option to use a cash basis and pay GST installments (as calculated by the ATO)
  • fringe benefits tax concessions (which apply from the beginning of the next fringe benefit tax year: 1 April 2017)

overviewlinkThe increased threshold will not, however, be applied when accessing existing small business capital gains tax concessions.

The unincorporated small business tax discount

Individual taxpayers with business income from an unincorporated business with an annual turnover under $5M are eligible for a tax discount. Currently 5%, this will increase over 10 years to 16% as follows:

Financial year Discount rate
2016-17 8%
2017-18 to 2024-25 10%
2025-26 13%
2026-27+ 16%

The current cap of $1,000 per individual for each income year will be retained.

Reducing the company tax rate to 25 per cent

The government is proposing to reduce the company tax rate for all companies over 10 years, initially for smaller companies, then for progressively larger companies as follows:

Financial year Companies with annual aggregated turnover of less than Applicable company tax rate
2016-17 $10 million 27.5%
2017-18 $25 million 27.5%
2018-19 $50 million 27.5%
2019-20 $100 million 27.5%
2020-21 $250 million 27.5%
2021-22 $500 million 27.5%
2022-23 $1 billion 27.5%
2024-25 All companies 27%
2025-26 All companies 26%
2026-27 All companies 25%

But perhaps we shouldn’t be counting our chickens? Presumably these long-term plans will be subject to the budget position (not to mention politics). This means they may be contingent on commodity prices which, in turn, means they may depend on how well the Chinese economy does over the next decade.

This is NOT a good budget for Apple, Google and the like … we hope.

A higher tax rate of 40 per cent will apply to profits which multinationals attempt to shift offshore. Penalties for disclosure failures will increase, and whistleblowers who bring these practices to light will get greater protections (from July 1 2018).

This is sure to be a popular measure. The question is, will the ATO have the teeth and the smarts to out manoeuvre the big boys?

What are your thoughts?

Do you operate a small business. Do you see these changes as helping your business?

Join the conversation — leave a comment below and let us know what you’re thoughts are.

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