Small Business Tax Breaks

The Government has announced a number of tax concessions for all small business taxpayers which, according to Government, make up 96 per cent of Australian businesses. The concessions announced by Government in the budget or in its lead up are as follows:

Deduction for motor vehicles purchased in 2012-13

Prior to the budget, it was announced on 8 May 2011 that small business will be entitled to claim an immediate $5,000 write-off of the cost of any motor vehicle purchased by small business operators from the 2012-13 year. The remainder of the purchase value can be transferred into the general small business depreciation pool, which is depreciated at 15 per cent in the first year and 30 per cent in later years.

Entrepreneurs' Tax Offset

Coinciding with this instant write-off for the first $5,000 of any motor vehicle, the Government announced the removal of the Entrepreneurs' Tax Offset (ETO) with effect from the 2012-13 income year. The Australia's Future Tax System Review (AFTS Review) recommended that the ETO be abolished because of its poor targeting and high compliance costs.

Enhanced write-offs for depreciating assets

From the 2012-13 year, small business will be entitled to claim an immediate write-off of all assets valued at under $5,000 (increase from $1,000 currently) and a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30 per cent. Currently, small businesses allocate assets to two different depreciation pools, with two different rates (30 per cent and five per cent) applying.

Both of these measures were previously announced following the recommendations by the AFTS Review.

Lower PAYG instalments

Pay As You Go (PAYG) instalments for small business in the 2011-12 year will be set at four per cent above the small business' taxable income for the previous year, which is half the statutory rate that would otherwise apply under the GDP adjustment factor method. The concession will have no relevance to taxpayers calculating instalments using the instalment income method. This concession will cease to apply for the 2012-13 year.

Small business concessions

The Government also proposes amending the definition of 'small business' to ensure that the provisions, which limit access to a range of tax concessions, are fully effective in that a trust will not be able to avoid being treated as a 'connected entity' on the basis that trusts do not own assets for their own benefit. The measures will ensure that some small businesses can access the small business capital gains tax (CGT) concessions because the changes will make their business assets active. These small business proposals will apply for CGT events occurring after 7.30pm (AEST) on 10 May 2011.

Reduction in tax rate

As previously announced, from the 2012-13 year, small businesses that are incorporated will receive a reduction in the company tax rate to 29 per cent.