You are a small business if –
- You operate a business for all or part of the income year
- have an aggregated turnover less than $10 million *
If your business is a company, your aggregated turnover includes your annual turnover, plus the annual turnover of all the entities that are connected or affiliated with your company. These connected or affiliated companies may be based in Australia or overseas.
What you need to know –
For business owners to claim a tax deduction in the 2019 financial year, you need to –
- ensure that your employee superannuation payments are received by the Small Business Superannuation Clearing House (SBSCH) or super fund (SMSF’s) by 30 June 2019.
- avoid making last minute superannuation payments as processing delays may cause them to be received after year-end.
The concessional superannuation cap (CC) for 2019 for all individuals is $25,000.
- the employer super guarantee (SG) contributions and salary sacrifice are included in these caps.
- where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.
- For the contribution to be counted towards the employee’s 2019 contribution cap, it must be received by the fund by 30 June 2019.
The advantage of maximising your CC is that superannuation contributions are taxed at 15% compared to typical personal income tax rates of between 34.5% and 47%.
Ordinarily, self-employed individuals and those who earn their income primarily from passive sources can make super contributions close to the end of the financial year and claim a tax deduction.
However, this is the first financial year that individuals who are employees may also use this strategy. Individuals who may want to take advantage of this opportunity include those who:
- work for an employer who doesn’t permit salary sacrifice
- work for an employer who allows salary sacrifice, but it’s disadvantageous due to a reduction in entitlements, and
- are salary sacrificing but want to make a top-up contribution to utilise their full CC cap.
Small Business Owners should consider taking advantage of this strategy to maximise personal CC contribution before the 30 June 2019.
Read our blog on Personal Income tax for further considerations
Include all your Income
It is important to make sure you declare all your cash and online sales in your tax return.
Your income may also include money you have earned from participating in the sharing economy. If for example, you are renting out a room, a car parking space, doing odd jobs such as delivery or cleaning for a fee, or driving passengers for a fare, remember to include this income in your tax return.
For more information visit: The sharing economy and tax.
Don’t miss out on Deductions
The ATO want small businesses to claim what they are entitled to – no more, no less.
You can claim tax deductions for most costs you incur while running your business. You can generally claim operating expenses, such as office stationery and wages, in the year you incur them. However, you typically claim capital expenses, such as buildings, machinery and equipment, over a longer period of time.
If your home is also your place of business, you can claim income tax deductions for a portion of the costs of owning, maintaining and using your home for this purpose but you must have an area set aside exclusively for your business activities. If you just use facilities in your home to run your business, then you may be able to claim a portion of running costs such as business phone costs, decline in value of furniture, cleaning, heating and cooling costs.
There are some important exceptions you need to be aware of. For example, you cannot claim deductions for private or domestic expenses. You should be aware that entertainment, fines and some other expenses are also specifically excluded from business related deductions.
You must also remember to keep accurate and complete records of all the assessable income and business deductions you claim.
For more information visit: Income and deductions for business.
Instant Asset write-off – simplified depreciation
The ATO have the simplified depreciation rules for small business.
The instant asset write-off threshold has increased to $30,000 for each asset from 7.30pm (AEDT) 2 April 2019 and the instant asset write-off has been extended to 30 June 2020.
Small businesses can immediately deduct the business portion of most assets that each cost less than $30,000 if they are first used or installed ready for use from 7.30pm (AEDT) 2 April 2019 to 30 June 2020.
However, if the asset was first used or installed ready for use from 29 January 2019 until 7.30pm (AEDT) 2 April 2019 you can still immediately deduct the business portion of most assets costing less than $25,000 each. Before 29 January 2019 the relevant threshold is $20,000.
Businesses with a turnover from $10 million to less than $50 million may now be eligible for the instant asset write-off for assets purchased for less than $30,000 each from 7.30pm (AEDT) 2 April 2019 to 30 June 2020. For assets purchased for $30,000 or more, the general depreciation rules must be used.
Company Tax Rate for Small Business
The company tax rate for small businesses (less than $10 million turnover) is 27.5%.
The company tax rate will reduce – for base rate entities – to 26% in 2020–21 and to 25% from the 2021–22 income year.
Increased small business income tax offset
You can claim the small business income tax offset if you ei
- are a small business sole trader
- have a share of net small business income from a partnership or trust.
The tax offset increases to 13% in 2020–21 and to 16% from the 2021–22 income year.
Contact us today to get advice specific to your circumstances.