The Australian Tax Office defines a ‘small business ‘as one which operates for all or part of the income year and has less than $2 million aggregated turnover. There are many tax concessions available to small business whether you‘re a sole trader, trust, company or partnership and many of my clients are quite surprised to learn when I tell them that they may be eligible for some of these. The types of tax concessions you might qualify for as a small business operator includes: Income, Capital Gains, Goods and Services, Fringe Benefits as well as a range of recently introduced small business tax breaks.
To qualify for these concessions there are further requirements other than simply being a small business. You may not be eligible for all of them and some may not be relevant your type of business. There are also different components attached to each concession. For example, there are four parts to the Income Tax Concession: simplified trading stock rules, simplified depreciation rules, immediate deductions for prepaid expenses and the two-year amendment period. The simplified trading stock rule may not be relevant to you but you may be eligible for the immediate deductions for the prepaid expenses, for example. If you are eligible for this, you can immediately claim a deduction for prepaid expenses where the payment covers a period of twelve months or less that ends in the next income year. This could make a big difference to your business making it worth exploring.
Many small businesses qualify for the Goods and Services Tax Concessions. There are a total of three concessions attached to Goods and Services: Accounting for GST on a cash basis, paying GST by instalments and annual apportionment of GST input tax credits. Many small businesses would find it a great help to be able to pay their GST in instalments, and if you qualify for this, your GST instalments are worked out for you by the Australian Tax Office.
There are four capital gains tax (CGT) concessions you may be eligible for in relation to ‘active assets’ used to conduct your business. These are: ‘15-year asset exemption’ which applies if you’re 55 or older and retiring and have owned an active business asset for at least 15 years. You won’t pay CGT when you dispose of the asset. The ‘50% active asset reduction’ is when you’ve owned an active business asset you’ll only pay tax on 50% of the capital gain when you dispose of it. A ‘Retirement CGT exemption’ applies to 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. The ‘Rollover CGT exemption’ applies if you dispose of an active business asset and buy a replacement asset or improve an existing one. In this case you can defer your capital gain until a later year.
Perhaps the most widely publicised recently introduced small business tax break was the instant asset write- off. Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000 and purchased between the 12 May 2015 and 30 June 2017 (From 1 July 2017, the threshold will return to $1,000) . This deduction applies for each asset that costs less than $20,000, whether new or second-hand. The deduction is claimed through a tax return, in the year the asset was first used. Other recently introduced concessions include deductions for professional expenses for start-ups, where deductible start-up costs including professional, legal and accounting advice and government fees and charges are deductable. There are also fringe benefits tax changes for work-related devices. From 1 April 2016, small businesses will not incur a fringe benefits tax liability if they provide their employees with multiple work-related portable electronic devices that have similar functions. These include devices 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. Finally, there was a recent company tax cut for all small businesses introduced commencing on 1 July 2015. The small business company tax rate has been reduced from 30% to 28.5%.
Many small businesses find their tax requirements and bookkeeping confusing and it often takes more time than people would prefer. Take the time to speak to your bookkeeper and find out what you are entitled to.