Small business entity turnover threshold to be increased to $10 million

As part of the Government’s Ten Year Enterprise Tax Plan, the small business entity turnover threshold will be increased from $2 million to $10 million from 1 July 2016.

Under the current law, businesses with an aggregated annual turnover of less than $2 million are entitled to access a number of small business tax concessions, including simplified depreciation rules, trading stock rules and a reduced corporate tax rate of 28.5%

From 1 July 2016, we expect that small business tax concessions, such as the following, will be available to businesses with an aggregated annual turnover of less than $10 million:

  • Tax rate of 27.5%, which is a further reduction from the already lower 28.5%
  • Simplified depreciation rules, including the immediate write-off of depreciating assets costing less than the threshold amount ($20,000 until 30 June 2017), and pooling of most other depreciating assets in the general small business pool (30% diminishing value rate and 15% for additions)
  • Simplified trading stock rules which allow taxpayers to estimate the value of their trading stock on hand at year end, rather than conducting a stocktake where a reasonable estimation indicates that the stock movement is less than $5,000
  • Immediate deduction for prepaid expenses, where the prepayment covers a period of 12 months or less, that ends in the next income year
  • Accounting for GST on a cash basis and paying GST instalments as calculated by the Australian Taxation Office
  • Exemption from fringe benefits tax where work-related devices such as mobile phones, laptops and tablets are provided to employees.

However, the Government has indicated that the current $2 million turnover threshold will be retained for the purposes of accessing the small business capital gains tax concessions, and access to the unincorporated small business tax discount will be limited to entities with a turnover of less than $5 million. However, it is unclear whether the new threshold will be applied when determining if businesses can access the new Small Business Restructure rollover relief, which was introduced earlier this year, allowing small businesses to change their legal structure without triggering any income tax liability when business assets are transferred.

While it was widely expected that there would be some form of company tax relief, much of the speculation centred on a long-term path to corporate tax cuts.

The Government has elected to give small and medium-sized businesses a pre-election tax cut, with their company tax rate falling to 27.5 per cent from July 1 this year.It is a 2.5 per cent tax reduction for up to 60,000 firms with annual turnover between $2 million and $10 million.

The threshold for reduced tax rate is proposed to progressively increase in the next few years to cover all companies by 2023-2024. The tax rate would then reduce to 25% by 2026-2027 income year.

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