Tax Concessions Small Businesses Should Know
One of the benefits of running a small businesses are the tax concessions that the government makes available. Here are some key concessions that you should know about.
As a small business, you should take advantage of the tax concessions the government provides assisting your operations. In this article, we will consider some key tax concessions.
Before getting started on the tax concessions that can be accessed on the Australian Taxation Office (ATO) website – Concessions at a Glance. It is important to determine whether you are eligible for these concessions by checking if you are a small business. The definition of a small business in the context of these concessions are companies with turnover less than $2 million.
We’ll be looking at a few concessions available in each of the 6 main areas as an outline.
- Income Tax Concessions
- Capital Gains Tax (CGT) Concessions
- Pay As You Go (PAYG) Instalment Concession
- Fringe Benefits Tax (FBT) Concessions
- Super Concessions
- Goods & Services Tax (GST) & Excise Concessions
Income Tax Concessions
- Instant Asset Write-Off – As mentioned in our 2019 Federal Budget article, the instant asset write-off has been increased to $30,000 for each asset and extended to 30th June 2020. If an asset cost less than $30,000 and was first used or installed between 2nd April 2019 to 30th June 2020, you can immediately deduct that asset. If used or installed between 29th January and 2nd April 2019, threshold = $25,000 and $20,000 for anything before 29th January.
- Lower Company Tax Rate – There is a lower company tax rate of 27.5% applicable to companies that have less than $50 million turnover for the 2018-19 income year and less than 80% of the companies’ assessable income is passive income (e.g. interest, dividends, rent, royalties & net capital gain).
- 15 Year Exemption –If aged 55 or older and you are retiring, and you have an active business for a minimum of 15 years. You won’t pay CGT when disposing of the business by sale, gift or transfer.
- 50% Active Asset Reduction – If disposing of an asset that you own, you’ll only pay tax on 50% of the capital gain.
PAYG Instalment Concessions
- You have an option to PAYG by instalments for the amount you need to pay . This option will be available for small businesses under option 1 on your activity statement. If required, you can vary that amount each quarter. This applies for the whole income year once chosen.
- Car Parking Exemption – Car parking benefits that small business provides are exempt if; not in a commercial car park, not a government body/listed company or subsidiary of a listed company and gross total income was less than $10 million.
- Work-Related Devices Exemption – You can provide employees with multiple work-related portable electronic devices (e.g. laptops, tablets, calculators, GPS navigation). These devices will be exempt from FBT. This benefit can be part or additional to an employee’s package.
- Superannuation Clearing House – The Small Business Superannuation Clearing House helps pay super guarantee contributions for all your employees. This service is available if you have 19 or fewer employees or a turnover less than $10 million.
- Contributions to your Super Fund – The amounts from the CGT 15 year asset & retirement exemption can be contributed towards your super fund without affecting your non-concessional contributions limits.
GST & Excise Concessions
- Accounting on a Cash Basis – If you elect to report your accounting on a cash basis (when you received or paid cash). You will then be able to claim any GST credits in the same tax period.
- Paying GST by Instalments – You can pay GST as well by instalments. This amount can vary each quarter if you choose that option.
The ATO provides a list of the Income and Deductions for Business which is helpful for small businesses. As always before choosing a concession option, it is advised that you reach out to a Tax Lawyer to ensure that you understand what is the best path for your business.
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Abhinav is a legal intern at Lawpath as part of the content team. Currently in his 3rd year studying a Bachelor of Laws at Macquarie University (Major in Banking, Corporate, Finance & Securities Law). He is keen to learn more about Mergers & Acquisitions in the future.