Big benefits for small business

The Australian Taxation Office defines a “small business” as one with an annual turnover of less than $2 million. According to the Australian Bureau of Statistics there are over 1.97 million such enterprises in Australia, representing 93.6% of all registered businesses.

With figures like these, it is no wonder the federal government consistently refers to the small business sector as the “engine room of the economy”.

Although they play a major role in the Australian economy, small businesses face a unique set of challenges and weak economic conditions in recent years have placed an additional burden on them.

As part of the strategy to stimulate the economy and boost employment levels, the government has targeted the small business sector with a package of tax incentives as follows.

1.5% tax cut for companies

For small businesses that operate as companies, the corporate tax rate is 1.5% less from 1 July 2015. This means incorporated small businesses will be paying tax at a rate of only 28.5%. Shareholders in such companies will benefit even further by being able to claim franking credits on their dividends at 30%.

$20,000 accelerated depreciation

All small businesses will benefit from the changes to the accelerated depreciation rules. The changes will enable small businesses to immediately depreciate any eligible asset costing less than $20,000 purchased after 7.30pm on 12 May 2015 (Budget night). There is no limit on the number of eligible assets that may be depreciated in this manner providing each individual asset costs less than $20,000. The value of eligible assets has been raised to encourage small businesses to invest in more capital equipment. These new rules are only a temporary measure and assets must be purchased before 30 June 2017 to be included.

5% tax discount

Owners of businesses that are not incorporated, such as sole proprietorships and partnerships, stand to gain from a 5% tax discount. However, this is not the same as a 5% reduction in the marginal tax rate. It means the amount of tax paid on business income will be reduced by 5%. For example, someone earning $80,000pa in business income would normally pay $17,547 in tax. Applying the 5% tax discount will reduce this by $877.35. The total amount by which a business owner's tax can be reduced under this scheme is capped at $1,000 each year.

Note: the legislation to bring this tax discount into effect is currently before Parliament and is not yet law.

If you are a small business owner, come and talk to us so we can help you take advantage of the government's generosity.