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3 Small Business Income Tax Concessions You Can Use In 2016

3 Small Business Income Tax Concessions You Can Use In 2016

The ATO generally defines a small business as a sole trader, partnership, company or trust that has an annual turnover of less than $2 million. To encourage small business spending the government has in recent years issued a number of tax concessions for small businesses. Even if you leave the preparation of your tax return to your accountant it’s important you understand what these concessions are so you can take full advantage of them in the current financial year.
$20k Instant Asset Write-Off
According to the general depreciation rules are entitled to claim the reduction in the value of an asset over the effective life of the asset. There are different methods for calculating depreciation including the prime cost and diminishing value methods and these rules are quite complex. Fortunately for small business, the government has provided simplified depreciation rules. One of these rules enables a small business to immediately write-off the cost of assets that cost less than $20,000. For example, if you purchase a used vehicle for your business for $18,000 in the current financial year you can claim an instant deduction for the purchase price (excluding any GST paid) instead of having to deduct the depreciation of the asset over a number of years.
Company Tax Cut for Small Business
One of the main advantages of doing business through a company structure is being able to take advantage of the company tax rate at 30%. Even better for small business, the small business company tax rate is now even lower at 28.5%. Despite the lower tax rate, a small business company is still entitled to the maximum franking credit at 30% on dividends. A small business company needs to be careful it does not allocate more franking credits to dividends that it has available in its franking account or it will incur franking deficit tax. Basically this means the company cannot allocate more franking credits to dividends than it has paid in tax.
5% Tax Discount for Unincorporated Business
If you are an owner of an unincorporated small business, then you pay tax at often higher marginal rates and cannot take advantage of the small business company tax rate. Still there is some good news for you too. If you are an individual taxpayer who receives business income from an unincorporated entity including a sole trader, partnership or trust which is considered a small business, you are eligible for a 5% discount off your income tax bill. The discount is applied as a tax offset (which is better than a deduction as it reduces your overall tax bill rather than just reducing your taxable income) and is capped at $1,000.

About the Author

Eddy is Founder and Principal Lawyer at entrelegal.com. He works with individuals and small business clients and provides a range of legal services including company, partnership and trust formation, wills and estate planning and commercial agreements. He also enjoys reading, writing and speaking on topics relevant to small business and productivity. He is also a former insurance litigator and previously served as legal counsel at IAG.

Twitter: @eddyaddicks