Business income and expenses
Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for 2017/18 compared to 2016/17.
Most businesses are taxed on income when it is invoiced. Some small businesses may be taxed only when income is received. Income from construction contracts is generally taxed when progress payments are invoiced or received.
Ensure that you have complied with the requirements to claim deductions in 2016/17:
- Bad debts must be written off in your accounts before 30 June
- Employer and/or self-employed superannuation contributions must be paid to, and received by, the super fund before 30 June and must be within the contributions cap ($35,000 for individuals aged 49 or over on 30 June 2016, otherwise $30,000)
- Depreciation can be claimed for assets first used, or installed ready for use, before 30 June
- Small businesses (turnover less than $2m, proposed to be increased to $10m) can claim expenses prepaid up to 12 months in advance – for larger businesses, this is generally limited to expenses below $1,000
- Wages paid to your spouse or family members must be reasonable for the work performed
Small businesses planning major purchases or replacements of capital equipment should contact us for advice. Careful timing of those transactions can result in substantial tax savings.
Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value.
This may change if you expect a tax loss for 2016/17, or substantially higher income in 2017/18 compared to 2016/17.
Small business tax rate
The tax rate for small business entity companies has been proposed to be reduced to 27.5% from 1 July 2016.
It has also been proposed that the small business turnover for most concessions be increased from $2 million to $10 million.
Individual small business taxpayers are entitled to 8% discount (increased from 5%) of the income tax payable on the business income received from a small business entity (other than a company), up to a maximum of $1,000 a year, with the aggregated turnover test being increased from $2 million to $5 million.
Note: at the time of publication, the proposed legislation is not enacted yet.
Accelerated depreciation
An immediate deduction is still available for an asset costing less than $20,000 acquired and first used or installed ready for use on or before 30 June 2017.
The balance of the general small business pool is also immediately deducted if the balance is less than $20,000 at 30 June.
Small business restructure rollover
From 1 July 2016, a small business entity can transfer active assets from one entity to one or more other entities without incurring a tax liability. Please contact us if you are considering restructuring your small business entity.
Intangible assets
Businesses have the choice to self-assess the tax effective life of intangible assets (for example, patents, copyrights) acquired after 1 July 2016, or to continue using the existing statutory effective life.
Other Considerations
Trusts
Trustees of trusts should ensure that all necessary documentation is completed before 30 June, where you intend to stream capital gains or franked distributions to specific beneficiaries.
Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses, or has beneficiaries whose total franking credits for the year may exceed $5,000.
Be sceptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.
Primary producers: Farm Management Deposits (FMDs)
From 1 July 2016, the following changes apply to FMDs:
- The maximum amount that can be held in an FMD has increased to $800,000 (previously $400,000).
- If your primary production property is experiencing severe drought, you can access your FMD within 12 months of making the deposits.
- Amounts held in an FMD can be used to offset (i.e. reduce interest) loans or other debts relating to your primary production business.
Income tax averaging
From the 2016/17 tax year, primary producers are allowed to opt back in to income tax averaging 10 years after choosing to opt out.
Fringe benefits tax
The FBT rate for the year ending 31 March 2017 is 49%.
Work-related portable electronic devices
From 1 April 2016, small businesses that provide their employees with more than one work-related portable devices can access the FBT exemption even if the additional items have similar function as the first device.
Salary packaged meal entertainment
From the 2016/17 FBT year, reportable fringe benefits will include salary packaged meal entertainment benefits and entertainment leasing expense benefits.
There are new rules limiting the FBT concessions for salary packaged entertainment benefits for employees of certain non-profit organisations.
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