Tax Concessions for Small Business

A range of tax concessions for small business have been designed to help cash flow. The latest concessions include a lower company tax rate for eligible businesses, increase of the small business income tax offset and deductions for professional expenses for start-ups. Some of these concessions just might help your small business.

Tax Depreciation Incentives

Tax depreciation incentives might be right for your small business. These include:

  • Temporary Full Expensing
  • Instant Asset Write-Off
  • Backing Business Investment
  • General Depreciation Rules

Pro Tax Tip: Aggregated turnover is calculated as the annual turnover of your business, plus the annual turnover of any business or affiliate connected with your business.

Temporary Full Expensing

Small businesses with an aggregated turnover of less than $5 billion will be able to deduct the business portion of the cost of eligible new depreciating assets first held and first used, or installed ready for use for a taxable purpose, between 7.30pm (AEDT) on 6 October 2020 until 30 June 2022.

For those businesses classified as small to medium (aggregated turnover of less than $50 million), the temporary full expensing applies to the business portion of eligible second-hand depreciating assets.

Improvements to business assets can be added to the costs of eligible assets. Assets must have been improved upon before 7.30pm (AEDT) on 6 October 2020. Small businesses can also deduct the balance of their business pools.

Lock out rules have been suspended that affect the simplified depreciation rules to claim temporary full expensing. This has been done so that small businesses can take advantage of temporary full expensing and the instant asset write-off. Temporary full expensing is to be extended for another year following announcements made in the latest budget.


Instant Asset Write-Off

Changes have been made to the Instant Asset Write-Off. From 12 March 2020, the threshold for each asset was increased from $30,000 to $150,000. Small businesses should first use or install an asset ready for use by 31 December 2020. Eligibility was expanded for those businesses with an aggregated turnover of less than $500 million, up from $50 million.

Backing Business Investment – Accelerated Depreciation

A 15 month investment incentive was introduced between 12 March 2020 until 30 June 2021 to allow businesses to accelerate depreciation deductions. This affects small businesses with an aggregated turnover below $500 million.

Key features include:

  • 57.5% of the cost of an asset can be depreciated is using the simplified depreciation rule in the first your an asset was added to the pool
  • 50% of the cost of an asset if not using the simplified depreciation rule can be applied to an eligible asset

Pro Tax Tip: Accelerated depreciations cannot be claimed if your business uses temporary full expensing or the instant asset write off for the same asset.

Lower Company Tax Rate

The company tax rate was been lowered from 26% to 25% from the 2021-21 income year, affecting base rate companies.

Base rate companies are those businesses with an aggregated turnover of less than the aggregated turnover threshold of $25 million for the 2017-18 income year, and $50 million for the 2018-19 to 2021-22 income years. Assessable income must be 80% or less from assessable passive income.

Pro Tax Tip: Your business needs to be classed as a small business to be eligible. Tax rates don’t change for all other companies.

Increased Small Business Income Tax Offset

If you’re a sole trader or have a share of net business income from a partnership or trust with income of less than $5 million, you’ll be able to claim the small business income tax offset. The rate of the offset is:

  • 8% from 2016-17 to 2019-20
  • 13% in 2020-21
  • 16% from 2021-22

Small Business Concessions

From 1 July 2016, a range of small business concessions were made available to small businesses with turnovers of less than $10 million, up from a $2 million threshold.

If you are a small business which has a $5 million turnover threshold from 1 July 2016 or have capital gains concessions (CGT) which continue to have a $2 million turnover threshold, you will not be eligible.

Fringe Benefits Concessions (FBT) increased to $10 million from 1 April 2017 and increased again to $50 million from 1 April 2021.

An immediate deduction for businesses of between $10 million and $50 million can be accessed for certain start-up expenses and prepaid expenditure.

Businesses of between $10 million and $50 million (from 1 July 2021) can access:

  • Simplified trading stock rules
  • PAYG instalments concession
  • A two-year amendment period
  • Excise concession

ITP Accounting Professionals have helped Australian Individual and businesses for 50 years to make the most out of tax time. Speak with an ITP Tax Accountant today and see how they can help your small business.