Tax changes for small businesses 2016/17 year end

This is a guide only to a selection of 2016/17 year-end tax changes affecting small business


Additional entities now considered small business

For 2016/17, the aggregated turnover threshold for a small business entity is increased to $10m. All of the income tax rules for small businesses now apply including:

  • the lower small business corporate tax rate (27.5% for the 2016/17 tax year)
  • immediate deductibility for small business start-up expenses
  • simplified depreciation rules (low-value pools), including the instant asset write-off threshold of $20,000 available until 30 June 2017
  • simplified trading stock rules
  • option to account for GST on cash basis and pay GST by instalments
  • simplified method of paying PAYG instalments calculated by the ATO, and
  • other tax concessions such as the extension of the FBT exemption for work-related portable electronic devices from 1 April 2016.

The increased $10m threshold will not be applicable for accessing the small business capital gains tax concessions.


Change in company tax rate — Small businesses

The 2016/17 corporate tax rate will be 27.5% for companies that carry on a business and have an aggregated turnover of less than $10m. This turnover threshold will be increased to $25m for the 2017/18 financial year.


Change in company tax rate — franked dividends

From the 2016/17 income year, the imputation system for corporate tax entities is to be based on the company’s corporate tax rate for a particular income year. This is worked out in regard to the entity’s aggregated turnover for the previous income year.

Therefore, with the change in the definition of small business above, an entity with between $2m and $10m in the 2015/16 income year can fully frank a distribution based on the tax rate of 27.5%.


Small business restructure roll-over

Small businesses still under $2m in aggregated turnover have the ability to change their legal structure without incurring a capital gains tax liability. The new roll-over applies from 1 July 2016, and is available for small business (under $2m) where a genuine restructure has occurred.

Genuine restructure is not defined but protection comes in the form of a safe harbour rule, which provides that it will be considered that a genuine business restructure has taken place in relation to a transfer if:

  • there is no change in ultimate economic ownership of the transferred asset in the three years after the transfer
  • there is no significant or material use of the asset for private purposes.


Similar business test

This year legislation has been enacted to allow a company to claim a prior year loss against business profits as long as it satisfies the similar business test. This test replaces the same business test, which was less flexible to pass, and is backdated to the 2015/16 financial year.

The current same business test is failed unless the company carries on the same business and has not derived income from any new kinds of business or transactions. The new test makes it easier for companies to pass where early investors have entered the company ownership.


Simpler BAS

Small businesses will have a simpler BAS after 1 July 2017. After this date, a small business (under $10m) will only need to report the following on a BAS:

  • GST on sales (1A)
  • GST on purchases (1B), and
  • Total sales (G1).


Primary producers

Income averaging

Primary producers are allowed to access income tax averaging 10 income years after choosing to opt out, instead of that choice to be permanent from 2016/17 and later income years.


Farm management deposit reforms

New rules for farm management deposits apply from 1 July 2016, which:

  • increases the maximum amount that can be held as an FMD to $800,000
  • allows primary producers experiencing severe drought conditions to withdraw an amount within 12 months and not be penalised, and
  • allows amounts held in an FMD to offset a business loan against the primary production business.


Other items

Queensland primary producers have access to a government grant up to $2,500 to help tackle family business succession planning.

Stamp duty relief for NSW primary producers allow an SMSF to own the farm and sell it to a family member, removing previous barriers of large transaction costs.


The source of this content is CCH‘s professional information services. Thompsons Australia has a professional subscription with CCH providing access to in-depth quality technical information and commentary used by Thompsons Australia in keeping staff and clients currently in formed.

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Thompsons Australia Newsletters and articles are distributed by professional tax practitioners to provide information of general interest to our clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

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