Small businesses often face unique financial challenges, but various tax concessions are available to help alleviate some of these burdens.
Effective tax management can be the key to improving cash flow and reducing operational costs.
Understanding small business concessions can significantly impact a business’s financial health and operational strategy, not only by simplifying compliance but offering significant financial benefits.
This article explores in detail nine key tax concessions:
Instant Asset Write-off,
Capital Gains Tax (CGT) Concessions,
Small Business Restructure Rollover Relief,
Prepaid Expenses,
Simplified Trading Stock Rules,
Small Business Income Tax Offset,
PAYG Instalment Concessions,
GST Concessions and
Fringe Benefits Tax (FBT) Exemptions,
Each of these can provide substantial benefits to eligible businesses and can be utilised to enhance business efficiency.
Instant Asset Write-off
The Instant Asset Write-off allows small businesses to claim immediate deductions for the full cost of an asset in the year the asset was first used or installed ready for use. It applies to both new and second-hand assets.
The aim is to improve cash flow for small businesses, enabling them to reinvest in the business and grow. The benefit is the immediate reduction in taxable income whilst encouraging investment in productive assets.
Eligibility Criteria:
The business must have an aggregated turnover of less than $500 million.
The asset must be used for business purposes.
Recent Changes:
As of recent updates, the threshold for the Instant Asset Write-off has been increased to $20,000, and it now includes more businesses than before. Check with the Australian Taxation Office (ATO) for the latest thresholds and limits.
Capital Gains Tax (CGT) Concessions
Capital Gains Tax concessions for small businesses can significantly reduce, or even eliminate, the CGT payable when selling business assets or the business itself. The benefit is substantial tax savings and incentives for business owners to reinvest in their business or retirement savings.
1. 15-Year Exemption: No CGT is payable if the business asset has been owned for over 15 years and the owner is retiring or permanently incapacitated.
2. 50% Active Asset Reduction: This reduces the capital gain on an active asset by 50%.
3. Retirement Exemption: Capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000.
4. Rollover Relief: Allows deferment of capital gain for two years when selling a small business asset, with possible extensions.
Small Business Restructure Rollover Relief
This concession allows small businesses to restructure by transferring active assets between entities without incurring immediate CGT liabilities. This allows the optimal structuring of business assets without immediate tax implications.
Eligibility Criteria:
The transfer must be part of a genuine restructuring, not just an attempt to avoid tax.
Both the transferring and receiving entities must be small businesses.
Prepaid Expenses
Small businesses can claim deductions for certain prepaid business expenses. This includes expenses paid in advance for services to be performed in a future income year. The benefit of using this strategy is the immediate tax deduction and improvement in cash flow, as well as the advantage of financial planning and budgeting.
Eligibility Criteria:
The service period for the prepaid expense must not exceed 12 months, and the period must end in the next income year.
Simplified Trading Stock Rules
Under these rules, small businesses do not need to conduct an end-of-year stocktake if the estimated change in the trading stock’s value is $5,000 or less. This reduces the administrative burden and saves time and resources that would otherwise be spent on detailed stocktakes.
Eligibility Criteria:
Businesses with an aggregated turnover of less than $10 million.
Small Business Income Tax Offset
The Small Business Income Tax Offset (SBITO) provides a tax benefit to small business owners, reducing the tax payable on the income from their business.
The offset is 16% of the income tax payable on the business income, capped at $1,000 per individual per year. This concession directly reduces the amount of tax payable, improving the after-tax income of small business owners.
Eligibility Criteria:
Available to individuals who are sole traders or have a share of net small business income from a partnership or trust.
The business must have an aggregated turnover of less than $5 million.
PAYG Instalment Concessions
The PAYG (Pay As You Go) Instalment Concessions allow small businesses to tailor their approach to paying instalments, making tax obligations more predictable and manageable.
Businesses can base their PAYG instalments on their current year’s income, which can help if the business income is expected to decrease compared to the previous year. This concession ensures that the payments are more closely aligned with the business’s cash flow, avoiding large overpayments and subsequent refunds.
Eligibility Criteria:
Available to small businesses with a turnover of less than $10 million.
GST Concessions
GST (Goods and Services Tax) Concessions simplify the GST process for small businesses, making it less cumbersome and more cash-flow-friendly. There are multiple, depending on your circumstances.
Accounting on a Cash Basis: Small businesses can elect to account for GST on a cash basis rather than on an accrual basis. This means GST is paid on sales when the money is actually received and claimed on purchases when the expense is actually paid.
Annual GST Reporting: Eligible small businesses can opt to lodge GST returns annually instead of quarterly, reducing paperwork and simplifying tax management.
Simplified GST Credits: Businesses can claim full GST credits on purchases that are partly for business and partly private, without needing to account for the private use portion, provided the private portion is not more than 10% of the total use.
These concessions help improve cash flow management and reduce administrative burdens associated with GST compliance.
Fringe Benefits Tax (FBT) Exemptions
FBT Exemptions allow small businesses to provide certain benefits to their employees without incurring fringe benefits tax, making it more cost-effective to reward and incentivise employees.
Work-Related Items: Exemptions for items primarily used for work, such as laptops, mobile phones, and tools.
Minor Benefits: Benefits that are infrequent and worth less than $300 are exempt from FBT.
Car Parking: Under certain conditions, small businesses may not have to pay FBT on parking provided to employees.
Reduces the tax burden associated with providing employee benefits, making it more attractive for small businesses to offer competitive employment packages.
Enhance Financial Efficiency with Small Business Tax Concessions
Leveraging these tax concessions can provide significant financial benefits for small businesses.
By reducing tax liabilities, simplifying compliance, and enhancing cash flow management, small businesses can allocate more resources to growth and development activities.
Each of these concessions has specific eligibility requirements and benefits, making it crucial for business owners to understand how they can apply these rules to their own circumstances.
Businesses are encouraged to consult with tax professionals like those at AFP Accounting, Tax & Business Advisory to ensure they are making the most of these opportunities and aligning their tax strategies with their overall business goals.
Contact us for tailored advice and thorough planning regarding these concessions. Email us at enquiries@afpaccounting.com.au or call (02) 7804 1849.
With expert guidance, small businesses can maximise their benefits and strategically improve their financial standing.
