Small Business Tax

October 12, 2013

Here at Gotsis Accounting your Sydney Tax Accountants, we Love Small Business Tax matters. In this short article, I shall go on and explain the latest Tax law changes and cover some of the benefits for your Sydney Small Business.

GST Registration
You must register for GST, and charge your customers GST, if your business has an annual turnover of $75,000. However, if your business turnover is lower than this you do not need to apply for GST – although you may decide to register so that you can claim GST on your purchases.

Small Business Depreciation
Effective from 1 July 2012, small businesses using the small business depreciation can:

  • claim up to $5,000 as an immediate deduction for motor vehicles, with the remainder of the motor vehicle cost to be pooled in the general small business pool, depreciated at 15% in the first year and then 30% in subsequent years;
  • immediately write off assets costing less than $6,500 in the income year in which they start to use the asset or have it installed ready for use; and
  • allocate depreciating assets costing $6,500 or more to the general small business pool and depreciated at a rate of 15% in the first year and then 30% in subsequent years, on a diminishing value basis.

Hire Purchase Agreements
The following changes were made to the GST treatment of new hire purchase agreements entered into on or after 1 July 2012:

  • all components of the hire purchase agreement, including the interest charges, are subject to GST; and
  • the GST charged on the hire purchase agreement can be claimed upfront, regardless of whether you account for GST on a cash or accruals basis.

The above changes presents the following cash flow benefits for small business owners who account for GST on a cash basis:

  • There is no need to break down the interest and principal components of a hire purchase agreement, as a GST credit can be claimed on both components.  Previously a GST credit was not available on the interest component.
  • The full GST credit on the hire purchase agreement can be claimed in the quarter when the first payment is made, or an invoice is issued, whichever is earlier.  There is no need to wait until each instalment is paid before claiming back the GST.

Prepaid Interest
If you prepay expenses on items such as rent and insurance, and your annual turnover is less than $2 million, you will be able to claim certain eligible prepaid expenses in the year the prepayment is made.  Eligible expenses will be payments that are made for periods of 12 months or less and that period ends in the income year after the income year the expense was paid.

Payment of Tax Liabilities by Credit Card
You can now make your tax payment using major credit cards – Visa, Mastercard or American Express. A fee of 0.48% applies for Visa or Mastercard credit card and 1.45% for American Express credit card transactions. The payment must be received by the ATO on or before its due date, taking into account extra time needed for payments made on the weekend, public holidays or after 6:00pm Sydney Time. To make a payment you will need the your ATO electronic funds transfer EFT code. You can then pay online at https://www.optussmartpay.com/governmenteasypay-ato/ or over the phone by calling 1300 898 089. The Government EasyPay service will provide a receipt for both the tax payment and the card payment fee.

Fuel Tax Credits
Most businesses can claim fuel tax credits for running machinery, equipment, heavy vehicles and plant used in operating their business. The fuel tax credit rates vary depending on how you use the fuel in your business, and are subject to change.  To be eligible to claim these credits, your business must be GST registered. You make the claim on your BAS statement being lodged.

New Reporting Requirement – Building and Construction Industry
There is a new reporting regime requiring businesses in the building and construction industry to report annually to ATO details of payments to contractors.  The new reporting requirement will apply to payments made to contractors in the building and construction industry from 1 July 2012.  The payments will need to be reported on the Taxable Payments Annual Report.  The first report is due for lodgement in  July 2013 and needs to disclose the following items for each contractor:

  • contractor’s name;
  • contractor’s ABN (if known)
  • contractor’s address
  • the total amount (including GST) paid to the contractor for the financial year; and
  • total GST included in the gross amount paid.

 Small Business Capital Gains Tax Concessions
There are four potential capital gains tax (CGT) concessions that may apply for a small business that sells an asset that has been used in its business in order to fully or partially reduce its capital gains tax.  These are:

  • the small business 15 year exemption;
  • the small business 50% reduction;
  • the small business retirement exemption; and
  • the small business roll-over.

Broadly, to obtain the concessions, the taxpayer must either have an aggregate turnover less than than $2 million or the net value of the assets of the taxpayer, its connected entitles, its affiliates and the entities connected with those affiliates is less than $6 million.  In addition, the asset being sold must have been used in the business for at least half the period from when the asset was acquired until it was sold if owned for less than 15 years, or 7.5 years if the asset was owned for more than 15 years.  Further conditions apply to some of the concessions.

If the taxpayer is eligible for the 15 year exemption, the entire capital gain is disregarded for tax purposes.

For the other three concessions, the taxpayer must first apply the capital losses against the full capital gain and then the CGT 50% discount (if applicable) before applying the small business CGT concession.  For example, after applying any capital losses, an individual who is eligible for both the CGT 50% discount and the small business 50% reduction can reduce a capital gain by 75%.  i.e.  The capital gain is first discounted by the 50% CGT discount and then again by 50% of the remainder based on the small business 50% reduction.