New law for tax concessions

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply from your 2017 tax return.

Expanded access to small business concessions

More businesses are now eligible for most small-business tax concessions.

From 1 July 2016, a range of small-business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously, the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small-business income tax offset, which has a $5 million turnover threshold from 1 July 2016
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

Increased small business income tax offset

You can claim the small-business income tax offset if you are a small-business sole trader, or have a share of net small-business income from a partnership or trust.

From the 2016–17 income year:

  • the small-business income tax offset increased to eight per cent, with a limit of $1000 each year
  • the offset applies to small businesses with turnover less than $5 million.

The ATO work out your offset based on amounts shown in your income tax return at:

If you use myTax – “Small-business income tax offset” (in the Offsets section).

If you’re a tax professional – the following labels:

  • item 5A Net small-business income
  • item 13D Partnership share of net small-business income less deductions attributable to that share
  • item 13E Trust share of net small-business income less deductions attributable to that share.

The tax offset increases to 10 per cent in 2024–25, to 13 per cent in 2025–26, and to 16 per cent from the 2026–27 income year.

Company tax rate cut for small businesses

For the 2016–17 income year, the company tax rate for small businesses decreases to 27.5 per cent. Companies with turnover less than $10 million are eligible for this rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5 per cent for these companies – in line with the company tax rate.

The reduced company tax rate of 27.5 per cent will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25 per cent by 2026–27.

If you lodged your 2016–17 company tax return early:

  • If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
  • If your turnover is from $2 million to less than $10 million, you need to review your return and lodge an amendment if required.

Please note: A Bill was tabled on 11 May 2017 to gradually extend the reduced company tax rate to all companies.

Simpler depreciation rules – instant asset write-off

If you are a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased:

  • from 1 July 2016 to 30 June 2017, and your turnover is less than $10 million
  • from 7.30pm on 12 May 2015 to 30 June 2016, and your turnover is less than $2 million.

This deduction can be used for each asset that costs less than $20,000, whether new or second-hand. You claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

Please note: In the Budget 2017, the Government announced an extension of the $20,000 instant asset write-off threshold to 30 June 2018 – the threshold currently reduces to $1000 from 1 July 2017.

The information is this article is provided by the ATO via their Small Business Newsroom

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