If you own a small business, having sufficient knowledge about taxation can help you stay compliant with the government rules. Over the last few years, several changes have been made in the world of small business. Some of these changes are because of the COVID-19 pandemic. Many companies have adopted the ‘work from home’ method, which has opened up new potential deductions in the small business tax return.
The Australian Government has also provided some relaxation on the regulations for small businesses. This blog gives you a clear idea of changes and updates made for various types of small businesses in the recent financial year.
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Tax Rebates and Incentives for Startup Businesses
Recently, the Australian Government has brought some tax regulations. Specifically for startup businesses intending to promote entrepreneurship and a vibrant technology sector.
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- There are various deductions available at the starting point of a company. The threshold is set to an amount under $50 million annual turnover. Because new businesses will find it challenging to achieve this figure in the early phases.
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- Other regulatory concessions are also available, which are more like a cost-saving rather than a tax rebate. So, if a small business wishes to alter its legal structure and needs asset transfer from one entity to another. It can be done without incurring a tax liability.
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- Other incentives aim directly at the science and technology sector, as it is a part of the National Innovation and Science Agenda. These incentives are designed to attract investors to invest in startups.
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- If a startup is an ‘early-stage innovation company’, eligible investors can get a non-refundable carry-forward tax offset of 20% for their investment.
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- A 10-year exemption is imposed on the CGT (capital gains tax) for investments held as ESIC shares for at least one year. However, to get this benefit, the shares should not be more than a 30% business stake.
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- Employers may get a maximum tax deduction of $1000 for each employee in any employee share scheme. Startup employees having part of their remuneration in shares and options will not need to pay tax on their claims after they resign.
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- If eligible, startups can also provide options and shares at a discount under 15% and avoid tax until the owner sells the business.
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- For unlisted companies, the cap on the share value sold or lent to employees has been increased. It has been raised from $5000 to $30000.
Tax Matters For Sole Traders And Partnerships
Two of the simplest small business structures are sole trading and partnership. You can start your trading just after you register a name for your business and get the Australian Business Number (ABN) for these two structures. Also, there will be no need to register for GST if the annual revenues are less than $75000. As a business owner, you are smart to think about taxes before you have to pay them, even before your business opens its doors.
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- These two structures’ most significant tax deductions include occupancy costs, operational expenses, and motor vehicle costs. If you operate the business from your home, owned, rented, or mortgaged, you can claim a share of those costs.
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- However, to make this claim, your business must pass the ‘interest deductibility test’. The area you have set as your office in the home premises must be eligible as a business place.
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- To calculate how much you can claim, you have first to figure out how much percentage of your home area is being used for business. Based on it, you can claim the expenses. If you use 15% of the total floor area, you can claim 15% of the council rates, mortgage, and insurance.
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- You can claim a percentage of other costs like landline phones, spanning power, cleaning, and furniture.
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- According to an ATO-offered formula, 52 cents can be deducted from these expenses for each hour. You can account for various assets like furniture, motor vehicles, and computers through depreciation. It is a principle in which it is acknowledged that these assets’ values get declined over time. For professional guidance, you can hire a tax agent.
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- In the most recent Instant Asset Write Off. Here you can write off the full value of an asset that has a maximum value of $150000.
Tax For Businesses That Have Less Than 20 Employees
The number of Australian small businesses that have less than 20 employees is over two million. The number of employees in these small businesses accounts for about 97% of total employees in Australia.
However, the survival rate of small businesses is much lower compared to larger firms. The success rate of small businesses is only 60%, which is 15% less than that of the companies that have more than 20 employees.
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- These small businesses with less than 20 employees can use the ATO deduction ranges, from the Instant Asset Write Off, which is now for assets with a maximum value of $150000. These deductions can be claimed on operational expenses like phone or motor vehicle costs and partial mortgage or rent. A tax agent from Perth can help you in filing your tax return.
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- Depreciation regulations are now allowing business owners to claim deductions for intangible assets.
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- Businesses with sufficient cash flows will have the option to offset their tax by prepaying expenses for upcoming financial years. These expenses include loan interests and professional subscriptions.
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- The current exclusion that applies to the first $250 spent on education courses has now been removed. It is giving business owners a much greater incentive to learn new techniques.
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- Apart from deductions, the Australian Government also offers some incentives for small businesses precisely because of the pandemic. These incentives are provided for hiring new employees and apprentices. Though these incentives are aimed explicitly at enhancing employment, they also help in business growth.
Final words
ATO also provides a loss carryback tax offset for struggling businesses. It helps companies get a cash refund and a reduced tax liability. To understand Australian taxation System, you can seek assistance from a tax agent in Perth, who can also file the tax return for you.