Key tax concessions for small business owners and individuals

Leading into the new tax year, now is the ideal time to consider your tax issues and tax planning. Small business owners and individuals need to be made aware of tax concessions that could affect their 2017 financial tax return.

Small Businesses

Budget Item: $20,000 immediate write-off for purchases extends to 30 June 2018

The 2017 Federal Budget proposed an extension to the tax concession for immediate $20k and under Asset Purchase write offs. Small business can now claim an immediate deduction for assets less than $20,000 they purchase before 30 June 2018.

Note: the current write-off for purchases up to $20k prior to 30 June 2017 is already in place.

Budget Item: Small Business – Turnover Threshold Increase

16-17 Year The small business turnover threshold remains at $2m

17-18 Year The small business turnover threshold has increased from $2 million to $10 million for the 2017-18 financial year. So, if you have multiple businesses are connected or affiliates (such as businesses owned by one family group) and the combined turnover for all businesses is less than $10m, all of the businesses can take advantage of the Small Business Concessions. Previously the limit was $2m.

If Max has 3 companies of which he’s Director or owner (sole trader) and their combined turnover is less than $10 million combined they are now deemed under the new threshold of $10 million.

These changes are good news for small business. Many small business owners now have more room to grow without the added pressure of losing the concessions.

Immediate deductions for prepaid expenses

Prepaid expenses are future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or not yet expired. Instead of waiting for the next financial year, you are now able to make instant deductions for prepaid expenses. Let’s take a quick look at an example below:

Example: In May 2016, Max’s small business prepays $2,000 for an advertisement to be run in the local newspaper from May until November.

What does this mean? Because the period for which the payment relates is for 12 months or less and ends before the conclusion of the following income year (2016/2017), Max can claim the entire $2,000 prepayment as a tax deduction in the 2015/2016 tax return.

This reduces Max’s taxable income for the year, resulting in less tax.

16-17 Year: Immediate Company Start Up Costs 

Immediate deductions are available for professional fees for start-up costs such as ASIC fees, accounting, and legal advice.

16-17 Year: Simplified trading stock rules

The ATO no longer requires small business (revenue <$2m) to conduct a stock take if the change in the value of your stock from 1 July 2016 to 30 June 2017 is less than $5000. Instead, you can use a reasonable estimate. For more information about reasonable estimating, visit:

https://www.ato.gov.au/business/income-and-deductions-for-business/in-detail/simplified-trading-stock-rules/

Budget Item: Reduction in Company Tax Rate (17-18 year)

From 1 July 2017, the company tax rate for small businesses drops by 28.5 percent to 27.5 percent. With the new government changes to the company tax rate, it means more money in your bank account. A win for small business companies.

Business Exit Strategies: Small Business Restructure Rollover

16-17 year: From 1 July 2016, a small business entity can transfer active assets to another eligible entity without incurring a capital gains tax (CGT). This rollover applies to the transfer of active assets that are capital gains tax assets. This includes goodwill, business premises, trading stock, revenue assets or depreciating assets.

Budget Item: Fringe Benefits Tip (Employee Bonus Idea)

17-18 Year Small businesses are now able to provide multiple work-related devices to employees in one year. Previously this action would incur a fringe benefits tax (applied from 2017-18 tax year). Devices include tablets, mobile phones, laptops etc. Prior to 2017, businesses could only provide one device under the FBT exemption.

We expect more businesses will be excused from ‘car parking’ benefits provided to their employees.

Individuals

Tax Threshold Increased

The tax threshold at which the marginal tax rate of 37% applies has increased from $80,000 to $87,000. Increasing this tax threshold means your taxable income amount can be reduced so you could pay less tax.

Superannuation

There are major changes to the superannuation system affecting individuals and self-managed superannuation funds (SMSFs).

2016/2017 Superannuation Concessional Contributions Caps

· $30,000 for individuals under age 50 and

· $35,000 for those age 50 and over &

Contribution caps limit the amount that funds can be contributed for a member each financial year. Additional tax excess may occur if a member’s total contributions exceed the contribution cap.

From 1 July 2017, the concessional contributions cap is $25,000 for everyone, regardless of age.

2016/2017 Superannuation Non-concessional Contributions Caps

· non- concessional contributions cap $180,000

The annual non-concessional contribution cap was reduced to $100,000 per year. This was available to individuals aged between 65 and 74 years if they meet the work test.

The non-concessional caps will be nil if you have a total superannuation balance greater than or equal to $1.6 million. Note: the total superannuation balance is determined on 30 June of the previous financial year.


Individuals

Tax Rates for 2016-2017

Tax Calculator

Work out your residency status for tax purposes

To understand your tax situation you first need to work out if you are an Australian or foreign resident for tax purposes.

The Australian Tax Office don’t use the same rules as the Department of Immigration and Border Protection. This means you:

This means you:

  • can be an Australian resident for tax purposes without being an Australian citizen or permanent resident
  • may have a visa to enter Australia, but are not an Australian resident for tax purposes.

Tax Residency

Completing your 2016-2017 Tax Return