Tax concessions for small business owners and individuals

Leading into the new tax year, now is the ideal time to consider your tax issues and tax planning. Small business owners and individuals need to be made aware of tax concessions that could affect their 2017 financial tax return.

Small Businesses

$20,000 immediate write-off by 30 June 2017

Great news for small business owners! The recent Federal Budget proposed an extension to the tax concession. Small business can now claim an immediate deduction for assets less than $20,000 they purchase before 30 June. All business owners should take advantage of this opportunity if you are looking to upgrading any business resources.

Note: the contract date of the purchase must be prior to 30 June 2017, and the assets must be ready for business use.

Small Business – Turnover Threshold Increase

The small business turnover threshold has increased from $2 million to $10 million for the 2016-17 financial year. Note: if you have multiple businesses are connected or affiliates (such as businesses owned by one family group), the combined turnover for all businesses needs to be under the new threshold.

Immediate deductions for prepaid expenses

Prepaid expenses are future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or not yet expired. Instead of waiting for the next financial year, you are now able to make instant deductions for prepaid expenses. Let's take a quick look at an example below:

Example: In May 2016, Peter's small business prepays $2,000 for an advertisement to be run in the local newspaper from May until November.

Example explained: Because the period for which the payment relates is for 12 months or less and ends before the conclusion of the following income year (2016/2017), Bruce can claim the entire $2,000 prepayment as a tax deduction in the 2015/2016 tax return.

This outcome reduces Bruce’s taxable income for the year, resulting in less tax.

Immediate Start Up Costs Deductions

Immediate deductions for professional fees for start up costs such as ASIC fees, accounting and legal advice.

Simplified trading stock rules

To reduce “red tape”, the ATO no longer requires small business to conduct a stock take if the change in the value of your stock from 1 July 2016 to 30 June 2017 is less than $5000. Instead you can use a reasonable estimate.

Reduction in Company Tax Rate

From 1 July 2017, the company tax rate for small businesses drops by 28.5 percent to 27.5 percent. With the new government changes to the company tax rate, it means more money in your bank account. A win for small business owners!

Small Business Restructure Rollover

From 1 July 2016, a small business entity can transfer active assets to another eligible entity without receiving a capital gains tax (CGT) . This rollover applies to the transfer of active assets that are capital gains tax assets. This includes goodwill, business premises, trading stock, revenue assets or depreciating assets.

Therefore, this tax relief will provide a great opportunity for business owners to review and restructure their business's exit strategies.

Fringe Benefits Tip (Employee Bonus Idea)

Small businesses are now able to provide multiple work related devices to employees in one year. Previously this action would incur a fringe benefits tax (applied from 2017-18 tax year). The FBP may include tablets, mobile phones, laptops etc. Prior to 2017, businesses could only provide one device under the FBT exemption.

As a result, more businesses will be excused from ‘car parking’ benefits provided to the employees.

Individuals

Tax Threshold Increased

The tax threshold at which the marginal tax rate of 37% applies has increased from $80,000 to $87,000. Increasing this tax threshold means your taxable income amount can be reduced so you could pay less tax.

Superannuation

There are major changes to the superannuation system affecting individuals and self-managed superannuation funds (SMSFs).

2016/2017 Superannuation Concessional Contributions Caps

· $30,000 for individuals under age 50 and

· $35,000 for those age 50 and over &

What are contribution caps? Contribution caps limit the amount that funds can be contributed for a member each financial year. Additional tax excess may occur if a member's total contributions exceed the contribution cap.

From 1 July 2017, the concessional contributions cap is $25,000 for everyone, regardless of age.

2016/2017 Superannuation Non-concessional Contributions Caps

· non- concessional contributions cap $180,000

From 1 July 2017, the annual non-concessional contribution cap will be reduced to $100,000 per year. This will remain available to individuals aged between 65 and 74 years if they meet the work test.

From 1 July 2017, non-concessional caps will be nil if you have a total superannuation balance greater than or equal to $1.6 million. Note: the total superannuation balance is determined on 30 June of the previous financial year.

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