A Quick Guide to Small Business Tax

Small business accounting can be a complex beast. It’s important to curate a tax plan when approaching your small business tax and finances.

Understanding the basics of small business deductions available, as well as general small business tax law will ensure you are ready for success. Here’s our quick guide for small business owners.

Small Business Tax Rate

For the 2016–17 income year, the lower company tax rate decreased to 27.5%. Companies are eligible for this rate if they are categorised as a small business.

Expanded Access to Small Business 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.

Small Business Tax Methods

There are three methods to use to plan for tax as small business in the current income year.

As small business tax rates and concessions vary, it is important to understand your financial standing as early as possible.

1. Use your previous turnover/s

You are a small business for the current income year if your previous year’s turnover is less than $10 million.

If you are completing a tax return for 2015–16 or an earlier income year, your previous year’s turnover must be less than $2 million.

2. Estimate your current turnover

You are a small business for the current income year if your estimated turnover is less than $10 million. You can only use this method if your turnover was less than $10 million for one of the last two income years.

You must work out whether your turnover is more likely than not to be less than $10 million, based on the conditions you know about at the beginning of the income year. If you are starting a business, base your estimated turnover on the conditions you know about at the time you start your business.

Factors to consider when estimating your turnover include:

  • your turnover in previous income years;
  • if you plan to reduce or increase staff in the current income year;
  • whether your business operating hours will increase or decrease;
  • if previous extraordinary sales or product lines will be available in the current income year;
  • whether your business will face increased competition in the current income year; and
  • whether your business activity will increase or decrease because of changing conditions.

3. Use your actual current turnover

If your actual turnover at the end of the current year is less than $10 million, you are a small business for the current income year.

If you are completing a tax return for 2015–16 or an earlier income year, and use this method, your estimated turnover for that year must be less than $2 million.

If you use your actual turnover, you cannot use the goods and services tax (GST) and pay as you go (PAYG) instalments concessions for that income year. You must choose these concessions earlier in the income year.

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 $1000 each year;
  •  Applies to small businesses with turnover less than $5 million.

The tax offset increases to 10% in 2024, to 13% in 2025-26 and to 16% from 2026-27 income year.

Small Business Asset Depreciation

The $20,000 instant asset write-off threshold has been extended until 30 June 2018.

If you are a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased:

  • from 1 July 2016 to 30 June 2018, and your turnover is less than $10 million
  • from 7.30pm on 12 May 2015 to 30 June 2016, and your turnover is less than $2 million.

This deduction is used for each asset that costs less than $20,000, whether new or second-hand. You claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

Small Business Tax Concessions

The most common general tax concession available to small business entities are primarily about the lower company tax rate and the simplified depreciation rules.

The Simple Small Business Accounting Solution

Online Tax Returns has a compact, experienced team of registered tax agents at the ready to make your small business tax accounting easy. We can assist you to set up a tax plan, complete taxation requirements and outline any small business tax deductions you may be missing. We’re local and open year-round, so you can be assured of support when you need it.

Contact us today to make your business boom!

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.