What's new for small businesses
Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016:
a) 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.
b) 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 8%, with a limit of $1,000 each year
· applies to small businesses with turnover less than $5 million.
The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.
c) Company tax rate cut for small businesses
For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. 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% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% 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% by 2026–27.
Tax rate cuts – "not meant to apply to passive investment companies"
On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O'Dwyer MP, issued a statement on the tax rate cuts for small companies.
Minister O'Dwyer said, "Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies."
Minister O'Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.
d) Instant asset write-off extension
Australia's 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.
The increased small business threshold from $2 million to $10 million means more businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately. Multiple claims can be made under the program.
i) Simpler BAS
From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million.
The ATO automatically transitioned eligible small business' GST reporting methods to Simpler BAS from 1 July 2017.
ii) GST on low value imported goods
The Government has passed the Treasury Laws Amendment (GST Low Value Goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018.
Treasurer's press release on GST low value goods
The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017.
The Treasurer said, "Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018."
Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia.
iii) Buy services or digital products from overseas?
From 1 July 2017, GST will apply to imported services and digital products.
Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST.
iv) GST input tax credits disallowed – tax invoices not enough
Re GH1 Pty Ltd (in liq) and FCT  AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer.
The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.
The Tribunal observed that the mere existence of a "tax invoice" is not, by itself, sufficient to establish that a "taxable supply" (under s 9-5 of the GST Act) and corresponding "creditable acquisition" (under s 11-5 of the GST Act), had, in fact, occurred.
v) GST – removing the double taxation of digital currency
On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money.
Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST.
This measure will ensure purchases of digital currency are no longer subject to the GST.
No changes to the income tax treatment of digital currency are proposed.
Tax incentives for early stage investors
From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.
The tax incentives provide eligible investors who purchase new shares in an ESIC with a:
· non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
· modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.
Changes for employers of working holiday makers
On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO.
Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register.
Key super rates and thresholds
For the 2017-18 income year, the:
· concessional contribution cap is $25,000
· non-concessional contribution cap is $100,000 (conditions apply)
· CGT cap amount is $1,445,000
· Div 293 tax threshold amount is $250,000
· low rate cap amount is $200,000
· ETP cap for life benefit termination payments is $200,000
· ETP cap for death benefit termination payments is $200,00.
The full list of rates and thresholds can be found on the ATO website.
Streamlined reporting with Single Touch Payroll
Employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018.
More information can be found on the ATO website.
Changes to tax withholding amounts
The way tax is calculated on salary and wages has changed.
From 1 July 2017, the:
· temporary budget repair levy has been removed
· Medicare levy low-income threshold increased.