Budget 2016-17: small business tax threshold lifts to $10 million

As part of the Government’s Ten Year Enterprise Tax Plan, announced in last night’s 2016-17 Budget, the small business entity turnover threshold will be increased from $2 million to $10 million from 1 July 2016.

From this date, businesses with an annual turnover of less than $10 million will receive a 1 per cent tax cut to 27.5 per cent. The $10 million threshold will be gradually increased each year so that all companies face a 27.5 per cent tax rate by 2023-24.

According to AAP, this means 870,000 businesses employing 3.4 million Australians will have their tax rate reduced.

In the 2015-16 Budget, the government reduced the tax rate from 30 per cent to 28.5 per cent for businesses with a turnover of less than $2 million.

“Last year, we announced a 1.5 percentage point reduction in the tax rate for small businesses with a turnover of less than $2 million per year. Tonight we go further and share the ambition for smaller businesses to become bigger businesses,” Treasurer Scott Morrison said during his budget speech. “If we wish to continue to see our living standards rise with more jobs and higher wages, we need to ensure our tax system encourages investment and enterprise.”

From 1 July the government will also extend write-off assets for equipment purchases of up to $20,000 until 30 June 2017, for businesses with a turnover less than $10 million.

In addition, access to unincorporated small business tax discounts will be limited to entities with a turnover of less than $5 million, up from the current $2 million. The tax discount for unincorporated small businesses will be gradually increased from the current 5 per cent to 16 per cent by 2026-27, and the current annual cap of $1000 per individual will be retained.

According to BDO, it is unclear whether the new threshold will be applied when determining if businesses can access the new Small Business Restructure rollover relief, which was introduced earlier this year, allowing small businesses to change their legal structure without triggering any income tax liability when business assets are transferred.

However overall, it seems the 2016-17 Budget is a win for small businesses.

“The increase in the small business entity turnover threshold is a welcome change for many businesses as it will allow greater access to concessions which had limited application to businesses with turnover of less than $2 million,” BDO said in a statement. “However, the change in threshold also introduces more complexity and questions as to which concessions will apply the new threshold.”

For further information visit budget.gov.au

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