Tag: Small Business Entities

INSTANT ASSET WRITE-OFF EXTENDED

The extension of the $20,000 instant asset Write-Off has now been passsed into law. 

PASSED
In the May 2018 Federal Budget the Government announced an extension to the Small Business Instant Asset Write-Off that was originally introduced from 1 July 2015. Under the Budget announcement, the Write -Off was to be extended until 30 June 2019 (it was to expire 30 June 2018). On 12 September 2018, The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 was passed by the Parliament into law to give effect to this 12-month extension.


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GST SBE Concessions

SMALL BUSINESS ENTITIES

Small Business Entities have access to a range of GST concessions including accounting on a cash basis, paying GST by instalments, an annual apportionment of GST credits, and a new Simplified BAS. Are you taking advantage of these concessions?

SBE Defination Extended!
New law has now been passed by Parliament expanding the definition of Small Business Entity (SBE).

Backdated to 1 July 2016, to qualify as an SBE you must be carrying on a business and have an annual turnover of less than $10 million – including the turnover of any connected entities or affiliates. This is up from the previous turnover threshold of $2 million. Treasury estimates that this change will open the way for an additional 90,000 to 100,000 businesses (i.e. those with a turnover of between $2 million and $10 million) to access the following GST SBE concessions:

New Law – Simper BAS
SBEs  may now be eligible to complete a simplified Business Activity Sttement (BAS) under the new Simpler BAS rules.

At its core Simpler BAS involves the reduction in the number of labels on the BAS. Under Simpler BAS SBEs now only need to report the following GST information on their BAS:
  • GST on sales (label 1A)
  • GST on purchases (1B)
  • Total sales (G).
SBEs are no longer required to report Export saels (G2), other GST-free sales (G3), Capital purchases (G10), and Non-capital purchases (G11). These labels are removed from the BAS altogether. Simpler BAS is aimed at simplifying BAS preparation, but also account set-up within a software file, and GST bookkeeping. To this end, the ATO has worked closely with software companies to streamline the coding of transaction for users of Simpler BAS. Within the software under Simpler BAS, you will only have three tax codes to choose from which wil generally be: GST, GST-free or Out of Scope. This may assist by making it easier to classify transactions with the other tax codes not relevant (e.g. Capital Purchases etc.).

ACTION POINT
  • SBEs do not need to opt-in to Simpler BAS – it is compulsory. The ATO will automatically send out these streamlined BAS to eligible SBEs. If you are an eligible SBE and you do not receive the simplified BAS, you should contact the ATO.

CAUTION
In theory, with the reduction in labels, Simpler BAS will make GST reporting and bookkeeping requirements simpler. This may encourage SBEs to bring the BAS function in-house rather than pay a Bookkeeper or Accountant to prepare your BAS. However, a word of caution! Although for GST purposes there will only be 3 classification, complexities will still arise in determining which supplies and purchase attract GST and which do not. A reduction in reporting labels does not change the complex GST law that sits behind thoise labels. Therefore, while moving the BAS function in-house may be appealing in terms of cost, you may wish to leave BAS preparation in the hands of your Bookkeeper or Accountant and enjoy the peace of mind and time savings that this brings.

Accounting on a Cash Basis
SBEs can elect to account on a cash basis. This means they can:
  • Claim GST credits on business purchases in the tax period in which you pay for those purchases. If you pay only part of the cost of a business purchase in a tax period and have a valid tax invoice, you will only claim GST credits for that part of the cost you payed for in that tax period.
  • Account for the GST payable on your sales in the tax period in which you receive payment. If you only receive part payment for a sale in the tax period, you will account only for the part of the GST payment that relates to that part of the sale in that tax period.

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SBE Opportunities


CGT

Small Business Restructure Rollover

The increased SBE threshold of $10 million also applies to the rollover for restructures of SBEs. To recap, this measure allows SBEs to change their operating structure without incurring capital gains tax or other income tax liabilities. It does this by providing an optional rollover (deferring any CGT liability or income tax liability until the asset is eventually sold) where an SBE transfers an active asset of the business to another SBE as part of a genuine business restructure, without change the ultimate economic ownership of the asset. The rollover may also be available for assets that are used by the SBE but held by an entity connected or affiliated with the SBE or, if the SBE is a partnership, a partner of that partnership. This ensures that partners and other ‘passive entities’ within an SBE that are not themselves SBEs (because they do not carry on a business themselves) can access the new rollover. Under the rollover, specifically, from a CGT standpoint:

  • No capital gain or loss will accrue to the Transferor. The Transferee will be treated as acquiring the asset on the date of transfer for an amount equal to the cost base of the asset.
  • Pre-CGT assets will retain their pre-CGT status post-transfer.
  • For the purposes of the 50% CGT discount, the ’12-month clock’ will be reset, such that the Transferee will need to hold the asset for a further 12 months following the restructure to avail themselves of this discount.
  • For the 15-Year Exemption however, the Transferee will be taken to have acquired the asset back when it was originally acquired by the Transferor.


As the $10 million increased threshold is backdated to1 July 2016, tax returns may need to be amended in respect of capital gains made and declared from restructures after this date. Amendments may result in refunds where any capital gains liabilities have been paid. 

CGT Small Business Concessions – No change


Unfortunately, the increased $10 million SBE threshold does not apply to the CGT Small Business Concessions (i.e. the Active Asset Reduction, Retirement Concession, Rollover, 15-Year Exemption). To access these concessions, the standard criteria must be met, namely you and connected entities must be met, namely you and connected entities must have net assets to the value of less than $6 million or your annual turnover (including connected entities and affiliates) must be less than $2 million.



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NON-COPRPORTATE TAX CUTS – SBITO

The Government has passed legislation increasing the rate of the Small Business Income Tax Offset (SBITO). This article details this change and its tax impact.

INCREASED OFFSET
Along with companies, the more than 70% of small businesses that are not incorportated will also enjoy additional income tax relief from 2016/2017. In 2016/2017 income and later income years, a higher rate of SBITO will apply:

  • For 2016/2017 to 2023/2024, the SBITO is 8% of an eligible individual’s basic income tax liability that relates to their total net small business income (up from 5% in 2015/2016).
  • For 2024/2025, the SBITO is 10% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2025/2026, the SBITO is 13% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2026/2027 and later income years, the SBITO is 16% of an eligible individual’s basic income tax liability that relates to their total net small business income.
Furthermore, the aggregated turnover test for access to the SBITO has been increased from 2016/2017 to $5 million (up from $2 million).

BACKGROUND
By way of background, individuals are entitled to the SBITO if they are an SBE (i.e. sole trader) or they have a share of a smaill business’ net income included in their assessable income (for example, distrbutions from a partnership or trust which themselves are SBEs) provided the small business is not a corporate tax entity (i.e. company). An individual can only claim one SBITO for an income year irrespective of the number of sources of small business income that an individual receives. The maximum amount of the SBITO from all sources of SBE income is $1,000 for an income year which will be claimed in your year-end tax return. 

Although capped at $1,000 per individual, serveral individuals within the one structure can enjoy their own SBITO (not just the business owner) provided at the end of income year they are assessed on income from an SBE. The discount is applied to your net small business income’ as follows:

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