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. Consequently, this uncertainty has significant implications for accountants in Sydney who need to navigate these changes and understand their potential impact.

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 immediate deduction for certain start-up costs.

Notably, the measures do not affect the turnover threshold for small business CGT concessions and remain 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% 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

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

The discount rate is proposed to increase to 8% for the years ended 30 June 2017 through 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.

Please contact us if you have questions about how the proposals might impact you.

Kreston Stanley Williamson Team

*Correct as of May 2016

Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.

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