Budget measures for small businesses

The Federal Budget was handed down on 3 May. A few days later, the Prime Minister confirmed that we would be heading to a 2 July election, leaving us with a caretaker government until then. In short, this leaves a high degree of uncertainty surrounding the implementation of measures announced in the Budget.

With that said, the Budget did contain some positive news for small businesses, including:

Increase in the Small Business Entity Turnover Threshold

From 1 July 2016, the small business entity turnover threshold is proposed to increase from $2 million to $10 million. This will allow many more businesses to access the $20,000 instant asset write off, reduced small business company tax rate, and the immediate deduction for certain start-up costs.

Importantly, the turnover threshold for small business CGT concessions is not affected by the measures, and remains at $2 million.

To add some confusion, the turnover threshold to access the tax discount for unincorporated entities is proposed to increase to $5 million.

Reduction in the company tax rate for small businesses

The tax rate for companies with turnover under $10 million is proposed to be reduced from 28.5% down to 27.5% from 1 July 2016. Eligibility for this lower rate is proposed to be eased over several years, first allowing access to companies with turnover up to $25 million from 1 July 2017, $50 million from 1 July 2018, and $100 million from 1 July 2019.  Eventually, by 1 July 2026, it is proposed that all companies will be eligible for a flat company tax rate of 25%.

Increase in the unincorporated small business tax discount

Currently unincorporated small businesses with a turnover of up to $2 million receive a 5% tax discount, capped at $1,000 per individual.

The rate of discount is proposed to increase to 8% for the years ended 30 June 2017 through to 30 June 2024, then gradually up to 16% by 2026/27. The discount will be available for unincorporated businesses with a turnover of up to $5 million. The $1,000 cap will be retained.

For more detailed commentary on all the budget measures, the Tax Wrap podcast is worth a listen.

If you have questions about how the proposals might impact you, don’t hesitate to contact us.