From 1 July 2016, the aggregated turnover threshold for small business eligibility has increased from $2 million to $10 million. This change allows more entities to benefit from the following small business concessions in the 2017 tax year:
- The simplified depreciation rules – small businesses are still eligible for the immediate deduction for depreciable assets under the $20,000 (GST exclusive) threshold. The general small business pool is also still available in 2017 for new assets that exceed the $20,000 threshold. These assets are written off at 15% in their first year and then at 30% once they are added to the general pool balance. An immediate deduction is available when the closing pool balance falls below $20,000. This concession has been extended to 30 June 2018, after which it will revert back to the $1,000 limit. It is important that all new assets purchased prior 30 June 2018 are ready for use to be eligible for the above concessions.
- A lower corporate tax rate – the tax rate has decreased to 5% for small business companies in the 2017 tax year. As part of a staged reduction in the corporate tax rate, the turnover threshold will progressively increase to $50 million by 2019 as the corporate tax rate progressively decreases to 25% by 2027. Companies that do not meet the turnover threshold for the relevant year or carry on a business will continue to pay tax at the 30% rate. The maximum franking credit that can be attached to franked distributions is 27.5%.
- The small business restructure roll-over – this new concession has been introduced to provide income tax relief from the genuine restructure of an ongoing small business. This allows small businesses to transfer active assets to another entity without incurring an income tax liability. The roll-over is available from 1 July 2016 and applies to gains or losses realised from the transfer of active asset including; capital gain tax assets, trading stock, revenue assets and depreciating assets.
- Immediate deduction for prepaid expenses – small businesses are still entitled to an immediate deduction for expenses paid in advance in the current year that also expire within 12 months.
- Immediate deduction for certain start-up costs – this is a pending concession that allows an immediate deduction for startup costs incurred by small businesses. Qualifying startup costs include professional advice or services and Australian Government agency fees that relate to establishing a new small business.
It is important to note that the $10 million aggregated turnover threshold does not apply to the following two concessions:
- Small business capital gain tax concessions – the turnover threshold of $2 million and the maximum net asset value of $6 million remain the same for the 2017 tax year.
- Small business income tax offset – the turnover threshold for this concession has increased from $2 million to $5 million. Small business can also enjoy the benefit of an increase in the offset rate from 5% to 8%. These changes are effective from 1 July 2016 but the offset still remains capped at $1,000.