Taxation and Compliance

Tax changes for small businesses in the new financial year

It’s the beginning of the new financial year! Do you know what the upcoming Australian tax changes are for small businesses?

July 1, 2020
Financial Statements and Income Tax Returns
Lauren
Hillier 

Tax changes for small businesses in the new financial year

The Australian Taxation Office (ATO) has introduced tax changes for small businesses for the 2020/2021 financial year.

We know navigating the changing rules around small businesses taxation can be difficult. At Hillier's Advisors, we offer a range of services to assist small businesses with start-up and taxation.

In this blog, we've broken down the key ATO tax changes for small businesses, so you know what you’re entitled to claim.

New financial year tax changes for small businesses

1. Simplified depreciation rules for the instant asset write-off

The instant asset write-off for small businesses runs from 12 March 2020 until 31 December 2020. The ATO states that eligible businesses can claim an immediate deduction for the business portion of thecost of an asset in the year it is first used or installed.

The new instant asset write-off changes for small businesses include:

  • The threshold amount for each asset is now $150,000 (up from $30,000)
  • Business eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

If you’re a small business with a turn over of less than $10 million and use the simplified depreciation rules, you must use the instant asset write-off. If you choose not to, your small business must follow the general depreciation rules. These rules set the amounts that can be claimed, based on the asset's effective life.

From 1 January 2021, the instant asset write-off will only be available for businesses with a turnover of less than $10 million. The threshold will only be $1000, so make sure you claim those assets!

You can learn more about the instant asset write-off here.

2. Backing business investment - accelerated depreciation

One of the recent changes to small business is the extension of the backing business investment. It is a time-sensitive investment incentive to support business investment and growth through accelerating depreciation deductions. To be eligible for the investment, businesses need to have an aggregated turnover of less than $500 million. Your eligible assets must also be new depreciating assets.

If you’re using the simplified depreciation rules, you can claim 57.5 per cent of the cost of the asset (for those 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’re using the general depreciation rules for a 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.

This change for small businesses will run from 12 March 2020 to 30 June 2021.

3. Lower company tax rate changes

The lower company tax rate will reduce –for base rate entities – to 26% in 2020–21 and to 25% from the 2021–22 income year. A base rate entity is a company that both:

  • has an aggregated turnover less than the aggregated turnover threshold – which is $25 million
  • 80% or less of their assessable income is base rate entity passive income – this replaces the requirement to be carrying on a business.

4. Increased small business income tax offset

The Small Business Income Tax Offset provides small businesses with a tax offset of up to $1000 per year. The offset is worked out on the proportion of tax payable on your business income.

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.

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

For further tax tips, check out the ATO’s Tax Time 2020 toolkit for small businesses here. Or head to our taxation page to learn what services we provide to help your small business get ahead.

If you’re busy running your small business and need help organising your taxes, contact us today!

By

Lauren

Hillier 

Principal

Lauren Hillier is the Principal Accountant at Hillier’s Advisors. After developing her skills and knowledge under father’s watchful eye, the family business...

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