The Benefits of Being In Small Business… From An Accounting Perspective
There are a number of tax benefits to being a self-employed person and being in business.
A small business is annoyingly defined in different ways by the Tax Office.
All concessions apply if your business turnover is less than $2 million a year with net assets under $6 million.
1. Accelerated Depreciation.
Depreciation records the wear and tear on an asset. If you buy a computer today it is not worth the same 6-12 months later for instance. The reduction in the value of a business asset is a tax deductible cost.
If a small business buys a business asset or another asset which is part business and part private (such as a vehicle) and the business portion of that asset costs less than $20,000 (net of GST), then that cost can be fully claimed as a business expense – rather than written down over the effective life of the asset.
This concession currently expires on 30 June 2018 so if you are planning to buy do so prior to 30 June.
2. Goods and Services Tax (GST) Concession.
You must be registered for GST if your business turnover is more than $75,000 a year. Below this figure GST registration is optional. There are two methods of GST accounting – cash or accrual. Cash accounting for GST, records GST on income when it is banked and accounts for GST on expenses when paid. Accrual accounting for GST, records GST on income when you invoice and GST on costs when you are billed.
If your turnover is less than $2 million per year you can opt for cash accounting for GST. This is good because you are not having to pay to the Tax Office on work and money that you are owed which is not paid due to slow paying clients.
3. Capital Gains Tax (CGT).
CGT concessions for small businesses have the effect of substantially reducing tax on realised Capital Gains. This is normally applicable when you sell your business or part of your business. These concessions exist because historically a significant part of a small business persons nest egg is their business.
4. Income Tax Concessions.
If you are a Small business, the rate of company tax has been falling over recent years. In 2016/17 it was 27.5% and it is forecast over the longer term to fall to 25%
This rate applies to businesses trading as Companies and Corporate Beneficiaries of a Family Trust only.
The company tax rate is a lot lower than the top personal marginal rate of tax of 45% (prior to Medicare).
It really is a great time to be in business.
Please contact me or your tax adviser if you need help understanding these rules.