Budget 2016: Turnover threshold for small business increased from $2M to $10M

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It has been confirmed that from July 1, small to medium-sized businesses with an annual turn over of up to $10 million dollars will qualify for a company tax rate of 27.5%, down from 30%.

It is a change the Federal Government believes will allow SMEs to “innovate, grow and employ more Australians.

It is anticipated that close to a million Australian businesses will benefit from the move announced by Scott Morrison this evening.

The tax reform is part of the Government’s focus on jobs and growth and comes under their “ten year enterprise tax plan” which will see company tax cuts gradually phased in for all businesses by 2026-2027, after which the company tax rate will be cut further to finally sit at 25%.

The tax cut is expected to cost $400 million in the 2016-17 financial year, $500 million from 2017-18, $800 million from 2018-19 and $950 million from 2019-20, with a forecasted total budget cost of $2.65 billion.

Treasurer Scott Morrison said in his budget speech that the plan is an important measure in securing Australia’s future prosperity and increasing the size of the economy by over 1 percent in the long term.

Morrison said the tax breaks to small businesses were given first as they are “more likely to reinvest their earning and more likely to be Australian owned.”

Responding to the announcement, Minister for Small Business Kelly O’Dwyer said that it is a move that will create “the right conditions for Australian small businesses to innovate, prosper, and create new jobs”.

“As a vital sector of our economy and the home of Australian enterprise and innovation, Australia’s hardworking small businesses need a tax system that actively supports them,” O’Dwyer said.

A spokesperson from the Australian Bankers’ Association said, “The Australian Bankers’ Association supports the measures in the Federal Budget to reduce the tax burden for small businesses, and the progressive extension of lower taxes to all businesses over a 10 year timeframe.”

“A healthy small business sector helps to create jobs and keeps our economy growing.”

The Council of Small Business Australia (COSBOA) said that lifting the threshold to $10 million would be significant.

“This would be a very big change and really good for the economy. It sends a really good message and a lot more people who turn over more than $2 million can take advantage of that, like your local pharmacy,” said Peter Strong, COSBOA chief executive.

$20,000 instant asset write-off and tax concessions

Businesses under the new threshold will benefit from the $20,000 instant asset write-off scheme introduced for some small businesses in last years’ budget.

Previously, the scheme was available to businesses with annual earnings under $2 million and in the 2015 financial year 99,000 small businesses made claims. The current timeframe for the scheme will see it end in June 2017.

Commenting on the budget, Small Business Minister Kelly O’Dwyer said that change in eligibility “will help more small businesses to reinvest in their business and grow by helping them to replace or upgrade their machinery and equipment.”

The Government also revealed that small businesses under the new $10 million threshold will have access to tax incentives including the simplified trading stock rules, depreciation pooling provisions, and Pay-As-You-Go Instalments payments option.

“The Government’s economic plan deserves a 9/10 for respecting the vital role SMEs play in the Australian economy,” said MYOB CEO Tim Reed.

“This is the second year in a row where small and medium businesses have been recognized and put front and centre in the budget. I have no doubt they will respond in the way the government hopes – by investing more in innovation and creating high quality jobs.”