Small Businesses are entitled to certain exemptions that larger businesses are not entitled to, however many small business owners are completely unaware of the benefits they are entitled to. These exemptions relate to Income Tax, Goods & Services Tax (GST) and Capital Gains Tax (CGT) and can save businesses a lot of money that would otherwise be paid to the ATO. In order to qualify as a Small Business your Gross Turnover (i.e. your income included GST) needs to be below $2m. If your business fits this requirement then you are eligible to apply any of the concessions listed below, however you do not have to.
With regard to Income Tax Concessions small business are eligible to apply simplified Depreciation and Stock rules and can access a reduce Tax Rate. Under the simplified deprecation rules small business can immediately write off all assets costing less than $20,000 (acquired after the 12th of May 2015). This is of great benefit to small businesses as it significantly reduces the net profit and therefore tax payable. However businesses should exercise caution and not simply purchase a large asset just because they are eligible for a deduction (i.e. the asset should be required by the business). These businesses are also eligible to pool most other depreciating assets (in a small business pool) and depreciate at a rate of 30%. The simplified Stock rules allows businesses to estimate the value of Stock on Hand at year end provided the difference between the opening balance and closing balance is no more than $5,000. Thus saving the time of completing a stocktake. Finally small businesses are entitled to a company tax rate of 28.5% as opposed to the standard 30%.
Small businesses are also entitlement to specific entitlements with regard to their Goods & Services Tax (GST) namely the ability to report on a cash basis as well as the ability to pay in instalments. Reporting on a cash basis allows small business to only remit GST on monies they have received. For example if at the end of an accounting period you have raised a large invoice to a customer but have not received payment you do not need to include that invoice on your Business Activity Statement (BAS). However it is important to note that if you do elect to report your BAS’s on a Cash Basis you will not be able to claim GST credits on expenses that you are yet to pay. Small Businesses are also entitled to pay GST in instalments. Essentially the ATO will provide you with instalments each quarter that you are required to pay. The at the end of the year you will be required to provide a GST report for the year and pay any shortfall that has arisen (or be entitled to a refund should your instalments exceed the amount of GST owed).
Capital Gains Tax (CGT)is a yet another area of the Tax system where small businesses are entitled to tax exemptions being: active asset exemptions and reductions as well as rollover exemptions. If you have owned a business for over 15 years and are over the age of 55 then you may be entitled to the active asset exemption, which means will you will not pay CGT when you dispose of the business. Alternatively is you are under the age of 55 you may still be entitled to a 50% discount in CGT upon the sale of your business. Finally is you dispose of your business and purchase another one you may be entitled to rollover relief which entitles you, as a small business owner, to rollover any Capital Gains made to a later income year (i.e. upon the disposal of the new business).
These Small Business concessions can prove to be complex and time consuming however they may provide small businesses with significant reductions in the amount of Tax they have to pay. At Progressive Accounting Solutions we have years of experience in providing the businesses of Geelong, the Bellarine and the Surfcoast with advise on whether or not they are eligible for these concessions. Therefore should you have any queries with relation to the above or any other accounting and/or bookkeeping issues please feel free to contact us and set up a free, no obligations consultation. firstname.lastname@example.org or 0438329958.