You could claim immediate deduction for up to $20, 000 of depreciable assets
If you are a small business, aggregated turnover of less than $2 million, then you can claim an immediate deduction from 12 May 2015 to 30 June 2017 for any depreciable assets with a cost less than $20,000. If you have more than one business then you have to aggregate the turnovers.
There are complex rules to work out what businesses are “connected” or “affiliates”. If you later sell the asset then the total proceeds are included in your taxable income. There are also rules on which year you use to calculate the $2 million. These all become very important if you are just on the borderline of $2 million.
Do you know that the tax rate for small businesses drops to 28.5% from 1st July 2015?
From the 1st July 2015 the tax rate for companies that are small business entities drops from 30% to 28.5%. To be a small business entity you need to have 80% of your income being derived from a small business. The calculation of the franking account is still based on 30%.
After this was announced an LED light bulb suddenly went on in Canberra and they realised that most small businesses are not run out of companies. Thus a further concession was announced that small business entities that are not companies will receive a discount of 5% of their income tax payable on that small business income up to a maximum of $1,000.
The two methods of calculation are different and it depends on your net profit percentage of sales to determine if one should incorporate. There is talk of the general company rate going down from 30% so the advantage of a small company may disappear in the next budget. The disparity between the company rate of 30% and the marginal rate of 34.5% for individuals with income over $37,000 will add to trend to incorporate. If you need to take the money out of the company for your living expenses then the difference is not relevant.
Be aware – HELP follows you overseas
HELP debts currently become repayable if you have “repayment income” over $54,126. This is generally based on Australian income and thus foreign sourced income was not included. From 1 January 2016 debtors going overseas for more than 183 days (6 months) will be required to register with the Australian Taxation Office while those already living overseas will have until 1 July 2017 to register. Repayment obligations will commence from 1 July 2017 for income earned in the 2016.17 year.
Small Business Depreciation Pool may deliver tax benefits
Instead of depreciating each item of assets separately, a small business, aggregated turnover of less than $2 million, is able to form a pool and claim depreciation at 15%. This rate can be lower than the normal depreciation rates. If your pool is less than $20,000 then the whole pool can be written off for income years ending 12 May 2015 to 30 June 2017. Once you opt for a pool then all assets must be included. You can opt out of a pool but once you opt out you cannot create another pool for five years. This five year lock out does not apply from 12 May 2015 to 30 June 2017.
Most accountants have NOT greeted the ‘pool’ system with rapture as the rules add another level of complexity to what is now a simple system of keeping depreciation records on a computer system. Generally small businesses do not have a large amount of depreciable assets and continuing businesses tend to have already written off a lot of their assets. These rules only apply to people carrying on a business and thus assets used to earn rent, interest, dividends and other non-business income are not included.