15 SMALL BUSINESS TAX TIPS FOR 2018
Small businesses may be eligible for a range of tax benefits. CPA Australia has put together the following tax tips to help small businesses.
Maximise depreciation deductions
Small businesses with an aggregated annual turnover of less than $10 million can still get an immediate tax deduction for nearly all individual assets purchased by 30 June 2018 that cost less than $20,000. Such assets must be used by the business for an income-producing purpose and they must be installed ready for use by 30 June 2018.
For businesses registered for GST, the $20,000 threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.
A depreciating asset that is not immediately deductible (an asset costing $20,000 or more) will be automatically depreciated at a flat rate of 15 per cent in the financial year of purchase to the extent the asset is used for income-producing purposes, and is used or installed ready for use by 30 June 2018. The adjustable value of such an asset can be depreciated, on that basis, at 30 per cent in subsequent years.
It is important to note that it is proposed that this measure be extended until 30 June 2019.
Make sure you pay the correct company tax rate
Most companies with an aggregated annual turnover of less than $25 million will pay tax at 27.5 per cent in 2017-18. However, some companies with a turnover below $25 million will continue to pay tax at 30 per cent, especially companies that earn nearly all their income from passive investments such as rental income or interest income. Companies that pay tax at 27.5 per cent can only frank dividends up to that rate.
As the law currently stands, to qualify for the lower tax rate in 2017-18, a company must have a turnover of less than $25 million and be “carrying on a business”. However, there is a proposal before Parliament to replace the ”carrying on a business” test with a test that will mean that companies below the $25 million threshold must earn no more than 80 per cent of that turnover from passive income such as rent, interest and net capital gains to qualify for the lower company tax rate company. This proposed change may lead to different tax outcomes from the current law for certain companies.
Both the current law and the proposed change create a number of complexities for companies, especially companies holding investments, as well as for the owners of companies. Your CPA Australia-registered tax agent is best placed to assist you with these issues.
Make trust resolutions by 30 June
As always, trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2017-18 financial year by 30 June.
If a valid resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust.
A trustee must be able to show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before year end. However, the trust's accounts do not need to be prepared by 30 June.
As a corporate trustee may need time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.
Seek professional advice when starting a business
Professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the financial year those expenses are incurred rather than deductible over a five-year period as was the case previously.
If you established a business during the year, you should speak to your CPA Australia-registered tax agent about claiming professional advice fees as an expense.
Consider whether your legal structure is right for your business
Small businesses are able to change their legal structure without incurring any income tax liability when active assets are transferred by one entity to another.
This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.
However, caution must be exercised. Business restructuring is complex, so you should first speak to your CPA Australia-registered tax agent.
Document the streaming of trust capital gains and franked dividends to beneficiaries
Broadly, trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts. The trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.
These streaming rules are complex and taxpayers should consult their CPA Australia-registered tax agent for advice.