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SMEs Set to Benefit from New Company Tax Relief

The Australian government and crossbench senators have agreed on legislation that would cut the company tax rate for taxpayers with a combined turnover of as much as $50 million.

With $24 million in estimated cost over a 10-year period, the measure is intended to foster economic activity and employment from small- to medium-sized enterprises.

Cut in company tax rate

The company tax rate reduction will be implemented gradually over 10 years beginning in the 2016-2017 income year. This is how the reduction will occur during the first phase:

Income Year                                                                                   Turnover Threshold

<$2m >$50m <$25m <$50m >$50m
Existing Rates 28.5% 30% 30% 30% 30%
2016-17 27.5% 27.5% 30% 30% 30%
2017-18 27.5% 27.5% 27.5% 30% 30%
2018-19 27.5% 27.5% 27.5% 27.5% 30%

Concessions for small business entities

In addition to the company tax cut, there is another measure in the legislation that would aid small businesses. Effective 1 July 2016, a small business entity (SBE) will be defined to include all entities with a combined turnover of under $10 million. Previously, the figure was $2 million.

These entities will be entitled to the following concessions:

1. Immediate write-off for assets amounting to less than $20,000 each

This concession allows SBEs to write off assets amounting to not more than $20,000 rather than depreciate them over their effective life. It is scheduled to culminate on 30 Jun 2017, thus SBEs need to be quick to be able to claim this concession.

2. Streamlined depreciation for other assets

For assets that cannot be immediately written off, SBEs can combine eligible assets together and depreciate it at 15% for first-year assets and at 30% for assets bought in previous years. This will give SBEs a bigger up-front depreciation claims.

This concession also ignores the purchase date as it relates to calculating depreciation, allowing businesses to obtain a full-year depreciation in the year of purchase.

For instance, an equipment amounting to $100,000 bought on 1 June 2017 would be entitled to a depreciation of $15,000 in the 2016-2017 year and $25,500 in the 2017-2018 year. In the past, SBEs could only claim one month’s depreciation in the year of purchase and probably at lower rates than 30%.

3. Up to 12 months of prepayments

Business taxpayers typically apportion prepaid expenses over the appropriate period. With this concession, SBEs can obtain an immediate deduction for prepayments of up to 12 months. Taxpayers who have been out of the arsenal since 2000 can use this as a tax planning tool.

For instance, you can get an immediate tax deduction from prepaying 12 months interest on a business loan in June 2017 in your income tax return for that year.

4. Reduction of amendment period from 4 years to 2 years

Those who qualify as an SBE can have their assessment amended for up to 2 years. The disadvantage is that taxpayers will be locked into their own tax positions and will be unable to request for a refund beyond the two-year period.

For instance, an SBE that files its 2017 tax return on 30 September 2017 has until 30 September 2019 to amend the tax return to raise or reduce tax payable.

5. More concessions

  • The Small Business Restructure Rollover will be implemented to allow the reorganization of existing family groups.
  • The start-up costs in establishing a business can be deducted immediately instead of deducted over a 5-year period.

Notably, small business capital gains tax concessions are not covered by the new $10 million turnover limit. The limit for this stays at $2 million.

These measures are generous and are intended to aid small- to medium-sized businesses and provide them with a few tax planning opportunities.

If you qualify as an SBE and you have questions about these new tax changes, contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Meet with one of our expert advisers now and ensure you are always compliant with ATO rules.