The government passed some legislation relating to budget measures just prior to parliament’s Christmas holidays. The new legislation will affect both individuals and businesses.

Businesses

Small Business Threshold

The Government announced an increase to the small business entity turnover threshold from $2 million to $10 million. From 1 July 2016, businesses with a turnover of less than $10 million will be able to access a range of concessions, which were previously only available to business entities with a turnover of less than $2 million. These concessions include:

– the simplified depreciation rules
– the simplified trading stock rules
– a simplified method of paying PAYG instalments calculated by the ATO
– the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO
– immediate deductibility for various start-up costs
– a 12-month prepayment rule
– more generous FBT exemptions for work-related portable electronic devices

The turnover for eligibility to access small business capital gains concessions remain at $2 million in addition to satisfying other eligibility tests.

Currently, small businesses can claim an immediate deduction for assets less than $20,000. However, this is expected to end on 30 June 2017.

Company Tax Cuts

Small businesses will see the first part of the tax cuts with the small business company rate reduced in 2017 from 28.5% to 27.5%. It is expected that the company tax rate will be reduced for all companies by 2027.

Caution needs to be taken when paying out company frankable dividends. Fully franked dividends attract a franking credit of 30%. This may result in a deficit in the company franking credits as the company tax rate falls below 30% resulting in either franking deficit tax or payment of unfranked dividends.

Unincorporated businesses will also receive an increase in the small business tax offset with the offset increasing from 5% to 8%. The offset is capped at $1,000.

Individuals

The 32.5% personal income tax threshold has increased from $80,000 to $87,000.

Thankfully, the 2% Budget deficit levy (tax) on taxable income over $180,000 will not be extended beyond its initial three years. 2017 will be the final year that levy will be applied.

The following individual tax rates for Australian Tax Residents apply from 1 July 2016:

*Rates do not include the Medicare levy of 2% and Temporary Budget Repair Levy of 2% on taxable income on over $180,000.

Division 293 Tax

All is not as rosy for high-income earners as the government has decreased the income threshold from $300,000 to $250,000.

Income used for the Division 293 purposes include:

– Taxable income
– Reportable fringe benefits amount
– Total net investment loss (includes both net financial investment loss and net rental property loss)
– Deductible superannuation contributions

Unlike the changes to superannuation reform, the above changes are welcomed and will have a positive impact on many small businesses. Please feel free to contact your Altitude Advisor to find out how these measures affect you.

Written by Chris Hampson