The government has announced the increase of the unincorporated small business tax discount from 5 per cent to 8 per cent, and will continue to be capped at $1000. The threshold will extend from a turnover of $2 million to less than $5 million. The tax discount will be increased to 16 per cent in stages until 2026-27.
In a statement accompanying the federal budget papers, Small Business Minister Kelly O’Dwyer said the government recognises “not all small businesses are companies” and therefore will not all benefit from cuts to the company tax rate.
The government estimates 2.3 million unincorporated small businesses will be eligible for the discount.
“This will provide unincorporated small businesses with improved cash flow and enable profitable unincorporated businesses to reinvest in their business to help them grow,” said O’Dwyer.
According to the government, a sole trader with an unincorporated business turning over $2.5 million and a taxable income of $150,000 would pay $46,447 in personal income tax, including the Medicare levy, under the current system.
After the unincorporated tax discount is applied, along with other changes to personal income tax, the sole trader would pay $45,132 in tax and would therefore be $1,315 better off. The unincorporated tax discount would account for $1000 of this amount.
The increase in the unincorporated tax discount is projected to cost $150 million each year from the 2017-18 financial year, at a total cost to the budget of $450 million over the forward estimates.
And from July 1, access to instant write-off for purchases of equipment valued at $20,000 each – due to end on June 30, 2017 – will be offered to businesses with a turnover of less than $10 million. Introduced in last year’s federal budget, it was limited to businesses with turnover of $2 million.
As long as it is not business inventory, the claim can be made for purchases of items such as vans, utes, coffee machines, office furniture, tools, welding equipment, hot-water units and sound systems.
According to Assistant Treasurer Kelly O’Dwyer 170,000 small businesses had made claims worth almost $800 million since the tax breaks were introduced.
Another 60,000 sole traders employing about 1.5 million Australians – again with a turnover between $2 million and $10 million – will get a 2.5 percentage point cut in the tax rate.
While there was no scope to cut company tax for big business, it will happen over time. The turnover threshold for access to the lower company tax rate of 27.5 per cent will increase incrementally, from $10 million to $25 million in 2017-18, to $50 million in 2018-19 and $100 million in 2019-20.
“By 2020, more than half of all employees of companies in Australia will be in companies paying a lower tax rate of 27.5 per cent,” Treasurer Scott Morrison said. “That’s around 4.9 million employees whose jobs will be supported by a lower tax rate in just four years.”
All up these tax measures will cost $5.3 billion over the next four years. The government hopes to collect a large portion of this from multinationals. It has given the ATO an extra 390 “average” staff as part of its new taskforce aimed at stopping multinational profit-shifting.
The taskforce is expected to raise $3.7 billion in tax liabilities between now and July 2020.
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SOURCES: Sydney Morning Herald, ATO, Knowledge Shop
