Increasing the Small Business Income tax offset (SBITO)
From 1 July 2016, the government will increase the current 5% tax discount (referred to as the SBITO) to 8%. The discount is currently available to an individual in receipt of income from an unincorporated small business entity (‘SBE’) (i.e., basically, an entity with an aggregated turnover of less than $2 million), and applies to the income tax payable on the business income received from such an entity.
The discount will remain constant at 8% for eight years, and will then increase to:
10% in 2024/25;
13% in 2025/26; and
16% from 2026/27.
The current tax discount (or SBITO) cap of $1,000 per individual for each income year will be retained.
Furthermore, access to the discount will be extended to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5 million.
Increasing the small business entity (‘SBE’) turnover threshold
From 1 July 2016, the government will increase the SBE turnover threshold from $2 million to $10 million. The current $2 million turnover threshold will be retained for access to the small business capital gains tax (‘CGT’) concessions, and access to the SBITO (i.e., the increased 8% tax discount) will be limited to entities with turnover less than $5 million (as noted above).
The increased $10 million turnover threshold will allow an additional 90,000 to 100,000 business entities to gain access to certain small business concessions, such as the following:
- The lower (27.5%) small business corporate tax rate (noted above).
- The simplified depreciation rules, including the ability to claim an immediate deduction for an asset purchased costing less than $20,000 until 30 June 2017.
- Simplified trading stock rules, giving businesses the option to avoid an end of year stocktake if the value of their stock has changed by less than $5,000.
- The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.
Reducing the company tax rate
The government will reduce the company tax rate to 25% over 10 years (i.e., by 1 July 2026).
This measure will commence from 1 July 2016, whereby the government will cut the small business company tax rate to 27.5%, and make this tax rate available to small companies with an annual aggregated turnover of less than $10 million.
This turnover threshold will then be progressively increased to ultimately have all companies eligible for the 27.5% tax rate in 2023/24.
In the 2024/25 income year, the company tax rate will be reduced to 27% and then be reduced progressively by 1 percentage point per year until it reaches 25% in the 2026/27 income year.
Franking credits will be distributed in line with the rate of tax paid by the company.
These changes present an excellent opportunity for tax planning, so call us to have a chat about what this measure measures mean for your business.
