Key changes for this year’s return
There are a number of key changes and new measures to be aware of when completing this year’s tax return. These include the tax concessions for small business and increasing access to company losses:
- Instant asset write-off – qualifying small businesses can still claim an immediate deduction for business assets purchased costing less than $20,000 through to 30 June 2017.
- Accelerated depreciation for primary producers – primary producers are reminded about the new rules from the 2015-16 Budget for claiming immediate deductions for the costs of fencing and water facilities.
- Company tax cuts for small business – the company tax rate was reduced to 28.5% from 1 July 2015 for small businesses with a turnover of less than $2 million and is proposed to be reduced to 27.5% from 1 July 2016 for businesses with an aggregated turnover of less than $10 million, though legislation has not yet been passed.
- Immediate deductions for start-up costs – small businesses can continue to deduct a range of start-up expenses (which began on 1 July 2015).
- Small business income tax offset – unincorporated small businesses can claim a tax offset of 5% of income tax payable up to $1,000. It is proposed the percentage be increased over the next 10 years from 5% to 16% (with the $1,000 cap per individual being retained), though legislation has not yet been passed.
- Increasing access to company losses – there are proposed changes to companies accessing losses under the National Innovation and Science Agenda intended to start from 1 July 2015 which have not yet passed into law.
Check your business industry code
Make sure the correct business industry code has been included on your business tax return. Many businesses change their purpose over time so the relevant business code used on last year’s business tax return may not be the same for your business this year.
Use the Business industry code tool to check the code. If you need to change the code, you may also need to update this information on the Australian Business Register.
Simplified depreciation rules for small business
The ATO website has clarified how the simplified depreciation rules might apply to your business.
There has been some confusion when using the instant asset write-off threshold, particularly when a taxpayer needs to:
Fully deduct assets that cost less than $20,000
Place assets costing $20,000 or more into the small business pool, and
Deduct the full amount of the small business pool when the balance is less than $20,000 – before any depreciation deductions are applied.
The ATO’s information will help you avoid making common errors, such as:
Under-claiming – by not writing-off the small business pool when the balance falls under $20,000
Over-claiming – writing-off the balance of pool because the balance falls under $20,000 after applying the yearly depreciation deduction.
Your Westlawn Business Services Accountant is expert in the treatment of depreciating assets and will ensure you make all the correct claims. Seek assistance in working out what assets you can depreciate and how best to make the claims.
Benchmark Interest rate
For the purposes of Division 7A which is about distributions made to entities connected to private companies, the benchmark interest rate for an income year is the ‘indicator lending rates – bank variable housing loans interest rate’ last published by the RBA before the start of the income year.
The ATO has released Taxation Determination TD 2016/11 which specifies that the benchmark interest rate applicable for the 2016-17 income year is 5.40%. This rate applies to loans from private companies to connected entities.
The Commissioner’s discretion is designed to help private company shareholders and their associates comply with Division 7A. It gives the Commissioner discretion to disregard a deemed dividend, or allow it to be franked if it arose because of an honest mistake or inadvertent omission.
If you have made an honest mistake or inadvertent omission related to Division 7A, speak to your accountant about applying for the Commissioner’s discretion.
Changes to CGT treatment for certain earnout rights
There is a new CGT treatment for certain earnout rights created on or after 24 April 2015 which satisfies the criteria of a ‘look-through earnout right’.
Earnout arrangements are often used when parties cannot agree on the value of the business at the time of sale.
If you have sold or purchased (or propose to sell or purchase) a business (or its assets) under a look-through earnout right created on or after 24 April 2015, the new look-through CGT treatment will apply. Contact your accountant for assistance.
Goods and Services Tax
Simplified GST accounting methods for small food retailers
The ATO has introduced the simplified accounting method for GST purposes (SAM) to make it easier for small food retailers to account for GST. These methods will help you work out the amount of GST you are liable to pay at the end of each tax period.
There are 5 methods to choose from:
- Business norms.
- Stock purchases.
- Sales percentage, and
- Purchases snapshot.
Decide which is best for your business. This will depend on the relevant turnover threshold (either ‘$2 million SAM turnover or less’ or ‘$2 million GST turnover or less’ depending on the method). You cannot use the averaging involved in these methods to set your prices. Businesses must still set prices in line with the Australian Competition and Consumer Commission’s (ACCC’s) guidelines.
Changes to GST obligations for overseas businesses
Overseas business clients may no longer be subject to GST from 1 October 2016. If you acquire supplies for your business from overseas suppliers, this change may impact your GST obligations. Seek advice from your Westlawn Business Services Accountant.
Useful information for small business
Small business income tax offset and calculator
The small business income tax offset for unincorporated small businesses can reduce the tax you pay by up to $1,000 each year, and is available from the 2015-16 income year.
Your offset is based on the amounts you show in your income tax return. These are the:
- Net small business income that you earned as a sole trader; and/or
- Share of net small business income from a partnership or trust.
To be eligible for the offset as a sole trader, you must be a small business entity. If you have a share of net small business income from a partnership or a trust, that partnership or trust must be a small business entity.
The ATO has a small business income tax offset calculator that can help you work out the amounts you need to include in your tax return.
Simplified depreciation – rules and calculations
You can choose to use the simplified depreciation rules if you have a small business with an aggregated annual turnover of less than $2 million.
Under these rules you:
- Immediately write-off – that is, claim their full cost in the year you buy them – most depreciating assets costing less than $20,000
- Pool most higher cost assets (those with a cost equal to or more than the current instant asset write-off threshold) and claim a:
- 15% deduction in the year you buy them;
- 30% deduction each year after the first year;
- Deduct the balance of your small business pool at the end of the income year if the balance at that time (before applying the depreciation deductions) is less than the instant asset write-off threshold.
If you choose to use the simplified depreciation rules, you must:
- Use them to work out deductions for all your depreciating assets except those specifically excluded, and
- Apply the entire set of rules, not just individual elements (such as the instant asset write-off).
You may choose to stop using the simplified depreciation rules or become ineligible to use them, in which case you’ll then use the general depreciation rules.
Sole traders who prepare their own tax return will be able to lodge online using myTax.
myTax has been upgraded to include business and professional items sections for sole traders and distributions from a partnership or trust. myTax also gives sole traders access to new online tools to assist with their tax return.
To use myTax, you will need a myGov account.
If you’re a sole trader planning to use myTax, you will find a number of tools to help you save time and avoid mistakes. The new depreciation and capital allowance tool will help you work out the deductible amount for your depreciating assets. It will also reduce your search time when determining the effective life of an asset.
The new CGT record keeping tool can help you calculate your capital gains events. Capital gains events might include the sale of a rental property, vacant land, holiday home, real estate or shares in a company or units in a unit trust.
Check with your accountant before creating a myGov account. If you need to complete a partnership, trust or company tax return, these will need to be lodged through a tax agent or on paper, so please consult your tax agent for assistance.