Small business is once again the focus for the Coalition’s budget this year. We give you a quick overview of what the bold headlines actually mean for you and your business.
These are the key changes for small business owners that will take effect from 1 July 2016:
- The company tax rate will be cut to 27.5% for all businesses with turnover up to $10 million.
- For unincorporated businesses with turnover less than $5million the current 5% tax discount will increase to 8%, up to a maximum of $1,000.
- The instant asset write off, which allows depreciation of assets worth up to $20,000, is being expanded to all companies with turnover up to $10 million (up from the previous $2 million cap).
- Other small business tax concessions, including simplified stock trading rules, simplified PAYG, option to account for GST on a cash basis and FBT tax concessions, will be extended to include all companies with turnover up to $10million. The higher threshold does NOT apply to capital gains tax concessions for small business.
- Personal tax cuts raise the third income tax bracket from $80,001 to a new threshold of $87,001.
Other changes don’t kick in until 2017. These include:
- Starting 1 July 2017, the annual cap on concessional contributions to super will be lowered to $25,000 for all taxpayers (down from $30,000 for those under 50 and $35,000 for anyone who turned 50 in the current financial year).Opportunity to top up super in future years, if the concessional contribution cap is not reached in previous years.
- Once the caps are reduced there will be opportunity to top up super in future years, if the concessional contribution cap has not been reached in previous years.
- Starting from January 2017 the government will be offering cash bonuses to businesses that offer internships or hire young job seekers.
That’s a quick look at the changes most likely to affect small business owners. Now let’s take a look at the questions you may be asking about what this really means for you.
Does it affect my tax planning for this year?
Since all of the measures take effect 1 July, there is nothing in this year’s budget that impacts directly on your tax planning for 30 June. But there are a couple of things you might want to consider.
Given that the cap on concessional contributions to super is being reduced, there is added incentive to top up your super to the maximum in this financial year (and next) if cash flows allow.
If your business has a company structure, then this is a particularly good year to consider strategies that involve deferring income or bringing forward expenses. Effectively these strategies reduce your taxable income in this financial year when your tax rate is higher, and increase your taxable income next year when the tax rate will be lower.
For more information on tax planning strategies download our free eBook.
Will I pay less tax next year?
The answer to this question depends on your business structure.
If you are a sole proprietor or partner then you pay taxes as an individual. So you may have a slight tax reduction thanks to the increasing of the third income tax bracket. However, Scott Morrison himself says this will only deliver a maximum saving of $316 per year.
If your unincorporated business has a total turnover under $5million, the government is also increasing their tax “discount” from the current 5% to 8%, however the cap remains at $1000. So this will only affect you if you had not yet reached the “discount” cap.
If you are a company with revenues up to $2million then your company tax rate will reduce by 1 percentage point from 28.5% to 27.5%.
If your company revenues are between $2million and $10million then your tax rate will come down by a full 2.5 percentage points from 30% to 27.5%.
But before you start counting your chickens remember that your tax structure allows you to offset company tax paid when you receive dividends. So the less you pay in company tax, the more personal tax will be due on any earnings you withdraw as dividends. This will be something to discuss with your accountant next financial year!
What’s the deal with hiring an intern?
The government is offering cash bonuses to businesses aimed at getting vulnerable people under the age of 25 into work starting in 2017.
Job seekers will be provided with a government funded 6-week training program before they enter a voluntary internship program beginning April 2017. Businesses will receive an up front payment of $1000 to host an intern for 4-12 weeks, and the government pays the interns wage.
Starting in January 2017 the government will be offering a Youth Bonus wage subsidy of between $6,500 and $10,000 to businesses that hire eligible job seekers.
This may be a good time to start looking at getting some young blood into your organisation.
How do the superannuation changes affect me?
Unless you already have a very large super balance, the main change is to the amount of super you are allowed to contribute. This will be reduced to $25,000 annually starting on 1 July 2017. However, the upside is that the government is allowing you to top up in future years, if you are unable to pay in to the maximum in previous years.
So let’s say you have a mediocre couple of years and you are only able to contribute $10,000 to your super in each of those years. Then in the third year a big investment starts to pay off and profits are pouring in. Now you can contribute not only your $25,000 cap for this year, but you can add $15,000 for each of the years you paid in only $10,000 (making up to the $25,000 cap).
We think this is really beneficial to many business owners who are riding the ups and downs of the business cycle and still wanting to build wealth for their future.
If you have questions about the recent budget or want assistance with tax planning please contact us. We are here to help.