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Budget 2016: Tax – Business

Published 4th May 2016

Company tax cut – WIN

The corporate tax rate for small businesses (annual turnover under $2 million) is currently 28.5 per cent (since 1 July 2015) and they are entitled to frank dividends at a maximum 30 per cent rate.
A reduction in the company tax rate from 30 per cent to 25 per cent will be phased in over 10 years. The tax rate for all companies will be 25 per cent by 2026/27. The reduction will apply incrementally, based on aggregated turnover as shown in the table.

Financial Year Aggregated turnover less than: Proposed company tax rate
2016-17 $10 million 27.5%
2017-18 $25 million 27.5%
2018-19 $50 million 27.5%
2019-20 $100 million 27.5%
2020-21 $250 million 27.5%
2021-22 $500 million 27.5%
2022-23 $1 billion 27.5%
2023-24 All companies 27.5%
2024-25 All companies 27%
2025-26 All companies 26%
2026-27 All companies 25%

Franking credits will be distributable in line with the rate of tax paid by the company making the distribution.

Small business tax discount increase and extension – WIN

The current tax discount for unincorporated small businesses (sole traders and partnerships) will be increased over 10 years from 5 per cent to 16 per cent. The discount will apply to individuals with business income from an unincorporated business whose aggregated annual turnover is less than $5 million.

Financial Year Proposed tax discount
1 July 2016 – 30 June 2024 8%
2024-25 10%
2025-26 13%
2026-27 and onwards 16%

Individual taxpayers will still calculate their business and personal income in the same way, and then they get a discount on the tax payable on their business income. The current cap on the discount of $1,000 per individual in a financial year will be retained, and it will be delivered as a tax credit in their tax return.

This tax cut is broadly in line with the phased reduction in the corporate tax rate to 25 per cent.

Small business $20,000 instant asset tax write-off extended – WIN

Small businesses (turnover less than $2 million) currently get an immediate tax deduction for every asset they buy for their business costing less than $20,000 up until 30 June 2017.

The instant asset write-off is extended to include businesses with a turnover of up to $10 million. Small businesses with turnover less than $10 million will be able to immediately deduct assets costing less than $20,000 each, between 1 July 2016 and 30 June 2017.

The $20,000 threshold will revert back to $1,000 from 1 July 2017.

Any assets over $20,000 (which cannot be immediately deducted) can continue to be added together (pooled) and depreciated at the same rate. These assets are depreciated at 15 per cent in the first financial year, and 30 per cent per year thereafter. If the value of the pool is below $20,000 until the end of June 2017 it can be immediately deducted too.

Simpler Business Activity Statements (BAS) – WIN

Business activity statements (BAS) will be simplified for small businesses (with turnover of less than $10 million) from 1 July 2017. A trial of the new simpler reporting arrangements will commence on 1 July 2016 and continue over the first two quarters of the 2016/17 financial year.

Other tax measures
• A 40 per cent tax on the profits of multinational corporations that are artificially diverted from Australia will be introduced from 1 July 2017.
• GST will be extended to low value goods imported by consumers from 1 July 2017
• Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5 per cent from 1 September 2017
• The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018.

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