Xenophon Or Zorro? Tax Planning To Slash Taxes For Small Business

INTRODUCTION:

The 2016/17 Federal Budget announced plans to increase the turnover threshold for small business entities (SBE's) from $2,000,000 to $10,000,000. Whilst the Bill has not yet passed through Parliament (mainly the proposed corporate tax reductions being a sticking point), we understand a deal has been done with Senator Nick Xenophon. Business owners and their small business accountants should check that the following changes do in fact take place and then apply them where appropriate.

Many of the proposed changes will see SBE's pay less tax.

So what are the main changes? 

Figure 1: Many of the proposed changes will see SBE's pay less tax. Scolari Comerford Small Business Accountants Sydney & Dubbo

1: Increase In Turnover From $2m To $10M From 1 July 2016

Once the increased threshold becomes law, small business accountants should ensure that their affected clients get access to the income tax, GST and FBT concessions that are available.

These include:

• immediate deductions for various small business start up expenses;
• simplified depreciation rules (pooling such as 15% first year and 30% thereafter);
• GST on a cash basis option;
• quarterly GST instalments;
• car parking FBT Exemptions;
• PAYG Instalments to be calculated using GDP-adjusted notional tax;
• restructure rollover rules from 1 July 2016;
• trading stock rules simplification;
• annual apportionment of GST credits for acquisitions and importations that are partly creditable.

2: Reductions In Company Tax Rates Turnover < $50M

Companies with turnover of $50,000,000 or more will continue to be taxed at 30%. The following entities under the annual turnover threshold will see the following:

• 2016/17 $10m - 28.5%;
• 2017/18 $25m - 27.5%;
• 2018/19 $50m - 27.5%;
• 2019/20 - 2023-24 - 27.5%;
• 2024/25 $50m - 27%;
• 2025/26 $50m - 26%; and
• 2026/27 $50m - 25%.

Figure 2: Less tax, more time for golf?

3: SBE Tax Offset Now For Turnover To $5M

From 2015, a 5% tax offset was made available to SBE sole traders or partners in a partnership or beneficiaries in a trust subject to a $1,000 cap.

For 2016/17 to 2023/2024 the offset is to be increased to 8% and then gradually increased to 16% in 2026/2027. The $1,000 tax offset of $1,000 will not be increased at the present moment.

4: Imputation System Changes

With the corporate tax reductions there was uncertainty as to how this would affect franking credits and whether they would attract 30% imputation credits which was allowed for the 2016 year even though a SBE may have been eligible to be taxed at 28.5%.

From 1 July 2016, the maximum franking percentage will be based on the company's tax rate for that year, which will based o the company's aggregated turnover for the previous year.

To do this:

• look at the company's aggregated turnover for the previous year;
• determine the corporate tax rate that would apply to the company in the current year if its turnover was the same as the year before;
• apply the corporate tax gross up rate.

Figure 3: Is your tax bill bigger than Ben Hur? Use these new rules to keep the tax man at bay!

CONCLUSION:

With the proposed changes, when tax planning for 2016/17, consider whether it is better to have income or expenses deferred to later years.

Above all though, if the concessions are available to you, make sure your small business accountant applies them so that you can pay less tax than you would have!