How the Budget will affect Small Businesses and Companies
The 2016-17 Budget will have a positive effect on most Australian Businesses. The full details are listed below:
Increase to the small business entity turnover threshold
Building on the small business package of measures introduced in the 2015-16 Federal Budget, from 1 July 2016, the small business entity turnover will be increased from $2 million to $10 million. Qualifying taxpayers will be able to access the following income tax concessions for small businesses:
- simplified depreciation rules, including immediate deductibility for assets costing less than $20,000 (until 30 June 2017);
- simplified trading stock rules (there will be no requirement for an end of year stocktake if the value of trading stock has changed by less than $5,000;
- a simplified method of paying PAYG instalments calculated by the ATO (removing the risk of overestimating or underestimating PAYG instalments and incurring penalties);
- accounting for GST on a cash basis and paying GST instalments as calculated by the ATO;
- other concessions available to small businesses, such as certain fringe benefits tax (FBT) exemptions such as the extension of the exemption for work-related portable electronic devices (starting from 1 April 2017 to align with the FBT year) and
- immediate deductibility of professional expenses.
However, only small businesses with a turnover of less than $2 million or that satisfy the maximum net asset value test will be able to access the existing small business capital gains tax (CGT) concessions.
In addition, from 1 July 2017, all small businesses with a turnover of less than $10 million will be able to access a simpler approach to preparing a Business Activity Statement (BAS) by being able to more easily classify transactions and prepare and lodge a BAS. A trial of the new simplified BAS reporting requirements will start on 1 July 2016.
Unincorporated small businesses
The unincorporated small business tax discount will be increased over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.
The rate will increase as follows:
|
Income Year |
Rate |
|
2015-16 |
5% |
|
2016-17 |
8% |
|
2017-18 |
8% |
|
2018-19 |
8% |
|
2019-20 |
8% |
|
2020-21 |
8% |
|
2021-22 |
8% |
|
2022-23 |
8% |
|
2023-24 |
8% |
|
2024-25 |
10% |
|
2025-26 |
13% |
|
2026-27 |
16% |
Reduction in the company tax rate
The company tax rate will be progressively reduced to 25% over the next 10 years. Correspondingly, the annual aggregated turnover threshold that will allow companies to qualify for the lower rate will rise over the next 10 years.
The changes to the company tax rate and turnover threshold are contained in the table below:
Income Year |
Rate |
Annual aggregated turnover threshold |
|
2015-16 |
28.5% |
$2 million |
|
2016-17 |
27.5% |
$10 million |
|
2017-18 |
27.5% |
$25 million |
|
2018-19 |
27.5% |
$50 million |
|
2019-20 |
27.5% |
$100 million |
|
2020-21 |
27.5% |
$250 million |
|
2021-22 |
27.5% |
$500 million |
|
2022-23 |
27.5% |
$1 billion |
|
2023-24 |
27.5% |
No limit |
|
2024-25 |
27% |
No limit |
|
2025-26 |
26% |
No limit |
|
2026-27 |
25% |
No limit |
The company tax rate remains at 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.
Changes to the rules applying to private companies
Targeted amendments will be made to improve the operation and administration of the integrity rules for closely-held, private groups (in Division 7A of the Income Tax Assessment Act 1936). The amendments will apply from 1 July 2018 and will include:
- a self-correction mechanism for inadvertent breaches of Division 7A;
- safe-harbour rules to provide certainty;
- simplified loan arrangements for the purpose of the rules; and
- a number of technical adjustments to the law to improve its operation and provide increased certainty for taxpayers.
National Innovation and Science Agenda measures
As part of the Government’s National Innovation and Science Agenda announced in December 2015, a number of tax-related measures were also introduced. In the 2016-17 Federal Budget, a couple of these measures have been expanded on
1- Expanding tax incentives for early stage investors
As part of the Budget announcement:
- the holding period will be reduced from three years to 12 months for investors to access the 10 year CGT tax exemption;
- the definition of eligible start-ups will include a time limit on incorporation and criteria for determining if the start-up is an ‘innovation company’;
- there will be a requirement that the investor and innovation company are non-affiliates; and
- the investment amount for non-sophisticated investors will be limited to $50,000 or less per income year in order to receive a tax offset.
2- Expanding the new arrangements for venture capital limited partnerships
As part of the Budget announcement, the funding arrangements to attract more venture capital investment will be expanded to improve access to capital and make the regimes more user-friendly.