Top Tax tips for Small Business

Do you own, run or manage a Small Business?

There are some good tax incentives for a small business if you can be defined as one. From 1 July 2016, you are a small business entity if you are a sole trader, partnership, company or trust that:

  • operates a business for all or part of the income year, and
  • has an aggregated turnover less than $10 million (the turnover threshold).

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

  • The small business income tax offset, which has a $5 million turnover threshold
  • The capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

GOOD RECORD KEEPING

Good record keeping is essential for business / financial management and will give you the tools you need to make informed decisions about the financial health of your business. The other benefit is that you will be far more organised should you receive a phone call from the tax office asking questions. Most reviews and audits by the tax office are dealt with quickly and smoothly when the financial records are well organised.

CORRECT BUSINESS STRUCTURE

As a small business, there are many benefits that can be accessed by having the correct structure through which to operate your business. These structures will include sole traders, partnerships, trusts and companies. Each business will require different structures for different reasons. These reasons include asset protection, estate planning, future business succession planning and of course tax planning.

It is vitally important to select the correct structure right from the outset as restructuring at a later date can often be difficult and expensive.

We highly recommend you seek professional advice when establishing a business to make sure you have the right business structure for your future.

TAX BENEFITS FOR SMALL BUSINESS

1. SIMPLIFIED DEPRECIATION RULES INCLUDING THE INSTANT ASSET WRITE OFF

As a small business, you can use the simplified depreciation rules, which includes the instant asset write-off.

Just remember though, if you choose to use the simplified depreciation rules, you must apply these rules to all your depreciating assets. You can’t just use the instant asset write-off for some assets.

If you elect to use these rules you must;

Immediately write off – that is, you must claim 100% of the purchase cost in the year in which you bought the asset provided it is below $20,000 and the asset is installed and ready for use.

A couple of key points to note here;

The asset must be under $20,000 excluding GST. Therefore $22,000 including GST would not pass.

The other point is that the asset must be installed and ready for use. So you cant simply order the asset on the 28th June. The asset must be in your premises and ready to be used. Pool most other assets that cost $20,000 or more in a small asset pool. This requires you to claim 15% deduction in the first year you buy the asset and claim 30% deduction in each subsequent year.

2. PREPAYMENT OF EXPENSES

If you need to minimise your income in a particular year, you can prepay certain expenses – but not exceeding more than 12 months. You can prepay expenses such as subscriptions, business travel expenses, training events, leases, rent, phone, Internet and insurance.

Of course, any prepayment requires you to actually make the payment prior to the 30th June and you should consider the impact on your cash flow before making this decision.

The other problem is that you will have fewer deductions in the following year, and you should consider the impact this will have.

3. 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 tax offset has been increased to 8% with a limit of $1,000 each year. To access this benefit, you simply need to fill out the correct components of your tax return.

4. COMPANY TAX RATE CUT FOR SMALL BUSINESS

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

Again, you just need to complete your company tax return correctly to access this lower tax rate.

5. DEDUCTIONS FOR PROFESSIONAL EXPENSES FOR START-UPS

For larger business’s these expenses are not immediately deductible, but for small businesses, certain deductions are fully deductible when starting up. The range of deductible start-up costs includes professional, legal and accounting advice and government fees and charges.

6. SMALL BUSINESS RESTRUCTURE ROLLOVER

Up until recently, changing your business structure could be very costly and often those costs would be prohibitive to change your business structure. From 1 July 2016 however, small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another.

A word of caution though, these provisions are quite complex and will only be of benefit in certain circumstances. Again, we suggest you obtain specific advice if you intend to use this benefit

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