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What’s new for small business: ATO details changes

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
24 June 2020 5 minute readShare
ATO

From simplified depreciation rules to expanded access to small business concessions, the ATO has put together a list of “what’s new” for small businesses ahead of the end of financial year 2019–20.

The Australian Taxation Office (ATO) has implemented several changes to rules affecting the small business environment as a result of the coronavirus-induced economic crisis. 

To help businesses navigate all the resources available as part of the COVID-19 response, we bring you the ATO’s comprehensive overview of:

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  • Simplified depreciation rules – instant asset write-off
  • Backing business incentive – accelerated depreciation
  • Accelerated depreciation for primary producers
  • Lower company tax rate changes
  • Expanded access to small business concessions
  • Increased small business income tax offset

Simplified depreciation rules – instant asset write-off

From 12 March 2020 until 31 December 2020, the instant asset write-off threshold amount for each asset is $150,000 (up from $30,000), while eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million.

This is a further change to the one that occurred on 2 April 2019 when the instant asset write-off eligibility was expanded to include businesses with a turnover from $10 million to less than $50 million.

 

So, if you are a small business (with a turnover of less than $10 million) and you have chosen to use the simplified depreciation rules, you must use instant asset write-off.

From 1 January 2021, the instant asset write-off will only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000.

If you are not using the simplified depreciation rules for small business, the general depreciation rules must be used.

To find out more about how instant asset write-off works and the thresholds, refer to instant asset write-off for eligible businesses.

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Backing business investment – accelerated depreciation

From 12 March 2020 until 30 June 2021, the backing business investment measure provides a time-limited (15-month) investment incentive to support business investment and economic growth by accelerating depreciation deductions.

The key features of the incentive are as follows:

  • The benefits are either:    
    • if you are using the simplified depreciation rules for small business, you can claim 57.5 per cent of the cost of the asset (for those assets that cost more than the instant asset write-off threshold) in the first year you add the asset to the small business pool;
    • if you are not using the simplified depreciation rules for small business, you can claim a deduction of 50 per cent of the cost or opening adjustable value of an eligible asset on installation. Existing depreciation rules apply to the balance of the asset’s cost.
  • Eligible businesses — businesses with aggregated turnover below $500 million.
  • Eligible assets — new depreciating assets (for example, plant, equipment and specified intangible assets, such as patents). The assets must be first held, and first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021. Some exclusions apply.

For more information, click here

Accelerated depreciation for primary producers

Fodder storage

You can claim a deduction for the full cost of a fodder storage asset if you:

  • incurred the expense either:    
    • on or after 19 August 2018;
    • before 19 August 2018 and it was first used or installed ready for use on or after 19 August 2018.
  • mainly use it to store fodder.
  • use it in a primary production business on land in Australia — even if you are only a lessee of the land.

Claim the deduction through your tax return in the year you incurred the expense.

Otherwise, you will continue to depreciate fodder storage assets over three years if you incurred the expense from 7.30pm AEST, 12 May 2015 to 18 August 2018.

If you are impacted by drought, information about ATO assistance is available at drought help or phone the office on 1800 806 218 to discuss your situation.

Fencing and water facilities

From 7.30pm AEST, 12 May 2015, primary producers can immediately deduct the costs of fencing and water facilities.

For more information, click here

Lower company tax rate changes

2018–19 income year

From the 2018–19 income year, a company must be a base rate entity to be eligible for the lower 27.5 per cent company tax rate.

A company is a base rate entity if both of the following apply:

  • they have a turnover less than the turnover threshold — which is $50 million for the 2018–19 income year.
  • 80 per cent or less of their assessable income is base rate entity passive income (such as interest, dividends, rent, royalties and net capital gain).

When working out the rate to use when franking your distributions, you need to assume that your aggregated turnover, assessable income and base rate passive income will be the same as the previous year.

2017–18 income year

From the 2017–18 income year, a company must be a base rate entity to be eligible for the lower 27.5 per cent company tax rate.

A company is a base rate entity if both of the following apply:

  • they have a turnover less than the turnover threshold — which is $25 million for the 2017–18 income year.
  • 80 per cent or less of their assessable income is base rate entity passive income (such as interest, dividends, rent, royalties and net capital gain).

When working out the rate to use when franking your distributions, you need to assume that your aggregated turnover, assessable income and base rate passive income will be the same as the previous year.

2016–17 income year

For the 2016–17 income year, the lower company tax rate decreased to 27.5 per cent. Companies are eligible for this rate if they are a small business that both:

  • has a turnover of less than $10 million.
  • operates a business for all or part of the income year — see Taxation Ruling TR 2019/1 for guidance on when a company “carries on a business”.

The maximum franking credit that can be allocated to a frankable distribution is determined by the corporate tax rate for imputation purposes.

Future years

The lower company tax rate will reduce — for base rate entities — to 26 per cent in 2020–21 and to 25 per cent from the 2021–22 income year.

Note:

  • You still need to be a small business to be eligible for other small business tax concessions.
  • The tax rates for all other companies do not change.

Increased small business income tax offset

You can claim the small business income tax offset if you either:

  • are a small business sole trader.
  • have a share of net small business income from a partnership or trust.

From the 2016–17 income year, the small business income tax offset:

  • increased to 8 per cent, with a limit of $1,000 each year.
  • applies to small businesses with turnover of less than $5 million.

The tax offset increases to 13 per cent in 2020–21 and to 16 per cent from the 2021–22 income year.

The ATO will work out your offset based on amounts shown in your tax return.

For more information, click here

Lodging using myTax

If you use myTax, the ATO will work out your offset based on amounts shown in your tax return. You will need to report your business income in two places, at both:

  • business or sole trader, partnership and trust income (including loss details) to count towards your taxable income.
  • small business income tax offset (under “Offsets”) so the ATO can work out your offset.

There’s a range of income that is not eligible for the offset. For example, you can’t include personal services income or salary, wages or director’s fees.

Expanded access to small business concessions

More businesses are now eligible for most small business tax concessions.

From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover of less than $10 million (the turnover threshold). Previously, the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016.
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

For more information, click here.

What’s new for small business: ATO details changes
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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