Small and medium sized businesses received a bit of attention from the Government in this year’s 2018-19 Budget.
Making it all the way to number 2 on the Government’s priority list of ‘must-do’s’, the Government stressed that it must “keep backing business to invest and create more jobs, especially small and medium sized businesses”.
With that said, a handful of measures were announced to support these businesses in Australia.
If you are a small or medium sized business owner, we’ve listed a few of the key Budget measures, tax breaks and outcomes that may directly impact you.
1. $20,000 instant asset write-off extended to 30 June 2019
Do you own a small business? Have you been planning any significant purchases?
If so, the great news is: you have another 12 months to take advantage of the $20,000 instant asset write-off scheme!
This tax break only applies to small businesses with an aggregated turnover of less than $10 million.
This Budget initiative means that as a small business owner, you get to improve your cash flow and boost your business activity and investment for another year.
Note: On 1 July 2019, the threshold will reduce to $1,000 so get shopping!
How does this work?
If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return.
This deduction is used for each asset that costs less than $20,000.
You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.
Jane owns a plumbing business. She buys five new laptops for her employees. Jane can take advantage of the $20,000 instant asset write off for all of these items because each individual item costs less than $20,000.
Jane also buys five second-hand mobile phones for her employees. The mobile phones are 50% for personal use and 50% for business use. This means only half the full amount of the iPhone can be claimed.
- You can use the $20,000 instant asset write-off multiple times. However, each one must cost less than $20,000.
- Don’t forget that purchases will only qualify if they total $19,999.99 or less, including GST!
2. Personal tax relief for low and middle-income earners
If you earn less than $90,000, you can expect some tax relief in the form of a new low and middle income tax offset and changes to personal income tax brackets.
Low and middle-income tax offset
- This offset will provide tax relief of up to $530 to low and middle income earners for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
- This offset means around 4.4 million people will receive the full $530 benefit for 2018-19.
Note! The benefit is in addition to the existing low income tax offset and will be available on assessment after a you lodge your tax return.
What are your savings per year?
|If you earn…
||Your savings per year
$37,000 or less
Up to $200
$37,001 – $47,999
Between $200 – $530
$48,000 – $90,000
Up to $530
$90,001 – $125,333
Up to $530, gradually reducing to $0
Changes to personal tax brackets
- From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased from $87,000 to $90,000.
- When the low and middle-income tax offset concludes in 2021-22, the benefits will be locked in by increasing the top threshold of the 19% tax bracket from $37,000 to $41,000 and increasing the low income tax offset from $445 to $645 from 1 July 2022.
- From 1 July 2022, the top threshold of the 32.5% tax bracket will be increased from $90,000 to $120,000, providing a tax cut of up to $1,350 per year.
How does this impact small and medium sized businesses?
The immediate relief for low and middle-income earners will be a significant benefit to the nearly 40% of small businesses that are unincorporated.
There will be some tax changes for your employees, so now is the time to review your payroll software, PAYG withholding tax and business processes.
- Single Touch Payroll is coming on 1 July 2018! If your business has 20 or more employees, you’ll need to report payments such as salaries and wages, withholding and super information to the ATO directly from your payroll solution at the same time you pay your employees.
- Speak to your payroll software provider or your tax adviser to find out how you can be compliant.
3. New changes to the research and development (R&D) tax incentive
Do you currently claim research and development (R&D) on your tax? If so, here are some changes to the R&D tax incentive that may affect your business, depending on your business’ aggregated annual turnover.
If your aggregated business turnover is $20 million or over
From 1 July 2018, the Government will introduce a new R&D premium for companies which provide higher rates of R&D support for higher R&D intensity.
The R&D premium will provide multiple rates of non-refundable R&D tax offsets, increasing with the intensity of the claimant’s incremental R&D expenditure.
If your aggregated business turnover is under $20 million
The R&D tax incentive will be capped at $4 million on cash refunds.
Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years.
This means that for small businesses, there will be a reduction in the offset available and may impact your decision as a small business owner in undertaking and relying on the R&D tax incentive.
Note! The ATO are cracking down on dodgy R&D claims. In particular, they are closely watching businesses that abuse the incentive by claiming ordinary business costs as R&D expenses.
Tip! If you are worried about your R&D spend, speak to your tax adviser to find out more. And don’t forget to keep all your records and documents!
4. Major crackdown on the cash economy
If you are in the habit of making cash payments when you conduct business, you may need to start considering using alternative methods of payment. The Government is seriously cracking down on cash payments over $10,000.
Three new key measures targeting cash economy (aka ‘Black Economy’) activities and illegal phoenixing are being introduced by the Government. These are:
- Limiting cash payments within Australia to $10,000
- Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
- Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry.