What does the Budget mean for Small Business?

Small business a winner in the 2016-17 Budget.

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The Budget delivers on key tax measures for small business.

Key initiatives:

  • The company tax rate will be cut to 25% over 10 years. From 2016-17 the tax rate for businesses with annual turnover under $10m will be 27.5%. The $10m threshold will be gradually increased so that all companies face a 27.5% tax rate by 2023-24.
  • After 2023-24 the tax rate on all companies will be cut to 27% and then cut by one percentage point until it reaches 25% in the 2026-27 tax year. Franking credits will be distributed in line with the rate of tax paid by the company making the distribution.
  • The tax discount for unincorporated small businesses will be gradually increased from the current 5% to 16% by 2026-27 and the current annual cap of $1,000 per individual will be retained. Access to this tax discount will be extended to individual taxpayers with business income from an unincorporated business that has annual turnover of less than $5m, up from the current $2m.
  • The tax threshold for small businesses will be lifted from $2m to $10m from 1 July 2016. The existing threshold value will be retained for access to the small business capital gains tax concessions. Access to the small business tax discount will be limited to businesses with turnover less than $5m.
  • Division 7A of the Tax Acts has posed problems of complexity and uncertainty to many businesses. The rules will be made clearer and outcomes more certain and inadvertent breaches of 7A will have a self-correction mechanism.
  • The Wine Equalisation Tax (WET) has been a controversial arrangement and the rebate cap is to be cut from $500,000 to $350,000 in July 2017 and further to $290,000 in July 2018. Tighter eligibility criteria governing access to the rebate will also be introduced.
  • The pro-innovation measures that followed on from last year’s National Innovation and Science Agenda have been refined. These include cutting holding periods for investors to be able to access the capital gains tax exemption, putting a $50,000 cap on non-sophisticated investors claiming a tax offset and putting time limits on incorporation and setting criteria to identify a start-up innovation company.

For full analysis download the report (PDF, 1MB)