Small and Medium Enterprises (SMEs) were the real winners of the 2016-17 federal budget. With the definition of a ‘small business’ proposed to be expanded, more businesses are set to benefit from both existing and proposed new taxation measures targeting SMEs.
Some of the measures impacting SMEs include:
- Extension of the small business entity threshold
The good news for many businesses is the proposed extension of the small business entity threshold from an aggregated turnover of less than $2,000,000 to $10,000,000 from 1 July 2016. The Treasurer estimates this change will make another 90,000 businesses eligible for most small business concessions including, but not limited to, simplified depreciation and trading stock rules. It is important to note that the extension of the turnover threshold will not apply to the small business capital gains tax (CGT) concessions. The small business CGT concessions will remain available only to businesses with an annual turnover of less than $2,000,000 or that satisfy the $6,000,000 maximum net asset value test.
- Reduction in the company tax rate
From the 2016/17 income year, it is proposed that the company tax rate for small businesses will reduce from 28.5% to 27.5%. The extension to the small business entity threshold means that those additional 90,000 businesses who will qualify as a ‘small business’ from 1 July 2016 will be eligible for this reduced company tax rate. Whilst SMEs will undoubtedly benefit from the reduction in the company tax rate, the wider business community would be right to be sceptical about whether they will also eventually reap the benefits of the longer term proposal to reduce the company tax rate for all businesses to 25% by 2026/27.
- Simplified depreciation and immediate asset write-offs
Simplified depreciation rules, including immediate tax deductibility for purchases of depreciating assets costing less than $20,000, are amongst the concessions currently available to small businesses. However it is important to note that these rules currently only apply to businesses with an aggregated turnover of less than $2,000,000 and are only proposed to apply to businesses with an aggregated turnover of less than $10,000,000 from 1 July 2016.