Small business entity turnover threshold to be increased to $10 million
As part of the Government’s Ten Year Enterprise Tax Plan, the small business entity turnover threshold will be increased from $2 million to $10 million from 1 July 2016.
Under the current law, businesses with an aggregated annual turnover of less than $2 million are entitled to access a number of small business tax concessions, including simplified depreciation rules, trading stock rules, and Pay-As-You-Go instalment calculation methods.
From 1 July 2016, we expect that small business tax concessions, such as the following, will be available to businesses with an aggregated annual turnover of less than $10 million:
- Simplified depreciation rules, including the immediate write-off of depreciating assets costing less than the threshold amount ($20,000 until 30 June 2017), and pooling of most other depreciating assets in the general small business pool (30% diminishing value rate and 15% for additions)
- Simplified trading stock rules which allow taxpayers to estimate the value of their trading stock on hand at year end, rather than conducting a stocktake where a reasonable estimation indicates that the stock movement is less than $5,000
- Immediate deduction for prepaid expenses, where the prepayment covers a period of 12 months or less, that ends in the next income year
- Simplified Pay-As-You-Go instalment calculation method using the GDP-adjusted option
- Accounting for GST on a cash basis and paying GST instalments as calculated by the Australian Taxation Office
- Exemption from fringe benefits tax where work-related devices such as mobile phones, laptops and tablets are provided to employees.
However, the Government has indicated that the current $2 million turnover threshold will be retained for the purposes of accessing the small business capital gains tax concessions, and access to the unincorporated small business tax discount will be limited to entities with a turnover of less than $5 million. However, 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.
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. However, the change in threshold also introduces more complexity and questions as to which concessions will apply the new threshold. For example, the Government has indicated that $2 million threshold will be retained for the purposes of the small business capital gains tax concessions, and the new $5 million threshold for the small business tax discount will add further complexity . Multiple thresholds increase complexity and confusion no matter how well intentioned they are.