This May, the annual federal budget was announced by the Treasurer in front of parliament. A lot of focus was put on personal tax cuts, with a program being released that would help focus on improving the transportation infrastructure in Australia. Unfortunately, there was less change pertaining to small businesses than was hoped for. However, there are a few things that have either been kept the same, or added to the federal annual budget that are worth taking into account for your small business.
The continuation of the $20,000 instant asset write-off
Long story short, this means that any small business has claim to an immediate tax deduction on any item under $20,000 that can be justified to boost the companies revenue and productivity. This can include just about anything, and may be the welcome encouragement needed to get a company car, replace faulty furniture and hardware, or buy new equipment pertaining to your company’s production of goods and services.
This is the second extension of this tax break, as it was originally intended to end on the 30th of June, 2016 and then was extended to 2017 and now has been extended another year. Prior to this write-off, any item over $1000 would require you to progressively receive tax back annually, only being able to claim all the tax return immediately on items under $1000. The same rule now still applies to any item worth over $20,000. The immediate deduction is replaced with a general small business pool deduction over time. It is worth noting that this only applies to businesses making under $10 million annually. The asset also must be used and installed during the year it was acquired.
If cash flow permits, now is a great time to invest in the health and well-being of your staff. Take advantage of the government’s instant asset write-off by purchasing a Zen Space desk before June 30th!
Personal Tax Cuts
There have been several changes to the way personal tax cuts are done. They may not seem to be applicable to small business initially but less taxes for consumers means they’re more likely to spend that money on your business so it is worth looking into. Over the next 7 years, the implementation of a three step plan to offset low and middle income tax.
Firstly, they will introduce a low and middle income tax offset (LMITO). This will allow a tax offset up to $530 annually to low and middle class resident taxpayers between 2018 and 2022. This offset is non refundable. A $200 benefit for taxpayers making under $37,000 annually, and for people making $37-48,000 annually, the offset increases three cents to the dollar, capping out at a max benefit of $530. Incomes between $48,000 and 90,000 can reap the greatest amount of $530, however incomes between $90,000 and $125,333 will have the offset gradually drop off at a rate of 1.5 cents per dollar, meaning that those with an income of over $125,333 will not receive any benefit from this offset.
The next step is relieving the middle class taxpayers from bracket creep. This will be done in July 2022, by increasing the low income tax offset from $445 to $645. At the same time increasing the 19% tax bracket from $37,000 to $41,000, further establishing the benefits of the first step. The final step of phase two is to update the 32.5% income tax bracket from $90,000 to a much higher $120,000.
Lastly, on the 1st of July, 2024, the 37% tax bracket will be completely removed. The top threshold mentioned at the end of phase two will be increased again to $200,000. Incomes exceeding $200,000 will begin paying the maximum marginal rate of 45% annually, and a 32.5% tax bracket is applied to everyone with an annual income between $41,000 and $200,0000. The savings that can be made once this 3 step plan is fully implemented will leave those making more than $100,000 annually $1,125 better off, $160,000 annually $3825 better off, and $200,000 annually will save $7,225.
Cracking Down on the ‘Black’ Economy
It isn’t all sunshine and rainbows though, as the government is now focusing harder on making sure small businesses follow law and order and have closed a few loopholes in the black economy. This can include companies failing to record all cash sales, or companies that fail to deduct PAYG when paying both contractors and employees.
Starting on the 1st of July 2019, it is illegal for small businesses to accept cash on any purchase over $10,000. These purchases must have a stored record of purchase made electronically or by cheque. A certain loophole regarding claiming tax deduction for employee pay when not withholding the PAYG has been closed.
Without an ABN and withholding PAYG, deductions will be legally removed for payments from businesses to contractors. Security providers, road freight transport, and computer system design companies will be required to inform the ATO of any pay sent to contractors annually, starting July 1st 2019. These same rules apply to cleaning and courier businesses, however this will be implemented on July 1st 2018.
This advice is general in nature – please seek professional advice before making any decisions.