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  • What's new for small business

    Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016.

    Note: when we say 'turnover', we mean aggregated turnover.

    On this page:

    Lower company tax rate changes

    2016–17 income year

    The lower company tax rate decreased to 27.5% for the 2016–17 income year. Companies are eligible for this rate if they are a small business that:

    • has a turnover less than $10 million, and
    • operates a business for all or part of the income year. See Draft Taxation Ruling 2017/D7 for what it means for a company to be 'carrying on a business'.

    The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies, in line with the company tax rate.

    2017–18 income year

    From the 2017–18 income year, a base rate entity is eligible for the lower 27.5% company tax rate. However, you still need to be a small business to be eligible for other small business tax concessions.

    A base rate entity is a company that:

    • has a turnover less than the turnover threshold – which is $25 million (increased from $10 million) for the 2017–18 income year, and
    • operates a business for all or part of the income year – See Draft Taxation Ruling 2017/D7 for what it means for a company to be 'carrying on a business'.

    To work out the rate you use when franking your distributions you need to assume your aggregated turnover will be the same as the previous income year.

    The lower 27.5% company tax rate will progressively apply to base rate entities with a turnover less than $50 million by the 2018–19 income year. From 2024–25, the lower company tax rate will reduce each year until it is 25% by 2026–27.

    Note:

    • A Bill was tabled on 18 October 2017 proposing to change the definition of a base rate entity from the 2017–18 income year. Under the proposed law, the carrying on a business test will be replaced with an 80% passive income test.
    • A Bill was tabled on 11 May 2017 to gradually extend the lower company tax rate to all companies.

    See also:

    Simplified depreciation rules – instant asset write-off

    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.

    In the 2018-19 Budget, the government proposed extending the $20,000 instant asset write-off (immediate deductibility) threshold to 30 June 2019. This change is not yet law.

    See also:

    Expanded access to small business concessions

    More businesses are now eligible for most small business tax concessions.

    A range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold) from 1 July 2016. The previous turnover threshold was $2 million.

    The $10 million turnover threshold applies to most concessions, except for:

    • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
    • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

    The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

    See also:

    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 $1,000 each year
    • applies to small businesses with turnover less than $5 million.

    The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year.

    We work out your offset based on amounts shown in your tax return.

    See also:

    Tax professionals

    If you're a tax professional, check out our information on claiming the offset for practical tips on how to avoid common errors at the different labels.

    Next step:

    Lodging using myTax

    If you use myTax, we will work out your offset based on amounts shown in your tax return. You will need to report your business income in two places:

    • Business/sole trader, partnership and trust income (including loss details) to count towards your taxable income
    • Small business income tax offset (under 'Offsets') so we can work out your offset.

    There's a range of income that is not eligible for the offset, for example, you can't include personal services income or salary, wages or director's fees.

    See also:

    Last modified: 07 Jun 2018QC 47369