What government incentives and tax deductions can small businesses benefit from? Let’s start with those tax deductions, including the $20k deduction…
The ATO has a giant list of tax deductions available for business on their website. Some of them include:
- Advertising and sponsorship costs.
- Bank fees and charges. (If you’re paying more than you should in fees, you can find better value by checking our ratings for Business Transaction Accounts, Business Savings Accounts, Business Credit Cards, Business Loans or Overdrafts, and even Business Life Insurance.)
- Business motor vehicle expenses (how you claim depends on your business structure, see the ATO website).
- Business travel expenses such as airfares, taxi fares, train fares, and bus fares. (Did you know our sister company Canstar Blue researches and rates domestic airlines for small business travel?)
- Clothing – corporate wardrobes, occupation-specific clothing, protective clothing.
- Company car of up to $20,000 for business use. Check out the great new cars available in 2016 for under $20k here.
- Depreciating assets that cost less than $1,000 (if you are a small business).
Source: Australian Taxation Office
- Donations of $2 or more to a registered charity. Need ideas? Read our list of 5 worthy causes here.
- Home office expenses when your home is used as a business premises – business phone bills, portion of your electricity bill, portion of rates, depreciation of office equipment, portion of rent or mortgage interest, portion of home and contents insurance. (See the ATO website for more information on running your business from home.)
- Insurance premiums, including accident or disability insurance included in business life insurance, building insurance, professional indemnity, public risk, or workers’ compensation, etc.
- Office expenses – electricity bills, phone bills, rates, water bills, rent or lease payments for business premises, repairs or maintenance to the property.
- Professional qualification expenses.
- Salaries, wages, bonuses or allowances, and superannuation contributions for your employees (and some contractors).
- Small value items costing $100 or less.
- Stationery expenses.
- Subscription costs for business or professional journals, information services, newspapers and magazines.
- Sunglasses, sunhats and sunscreen when your business activities require outdoor work.
- Tax expenses – bookkeeper, preparing and lodging tax return and BAS, registered tax agent and accountant fees, and legal fees to obtain tax or other business advice.
- Tender costs, even if the tender is unsuccessful.
- Transport and freight expenses.
- Travel expenses for relocating employees.
- Union dues and subscription fees to trade, business or professional associations.
- Website – costs for running a commercial website, such as site maintenance, content updates, and internet service provider fees. (Here’s why it’s worth optimising your website for mobile.)
You can find information about small business tax deductions on the ATO website.
Instant asset write-off: $20,000 tax deduction
There is no doubt that small businesses and sole traders were a main beneficiary of the government’s 2015 Federal Budget. One important benefit was an immediate tax deduction for each item a small business purchases for business-related use, up to a cost of $20,000 per item. This incentive was scheduled to be available until next year – 30 June 2017 to be precise.
Should businesses start spending money?
A $20,000 instant tax deduction sounds tempting – but is it really a good idea? As always, something is really only a bargain if you needed it in the first place.
CANSTAR caught up with Tristan Webb, National Tax Director – Tax Advisory Crowe Horwath, to find out a few more details behind the $20,000 headline.
Q: The tax deduction will obviously be at the marginal tax rate of the self-employed person or small business owner. Is this something they should keep in mind before making new purchases?
A: As with any business purchase or investment, the most important thing to consider is the commercial returns that that investment is likely to deliver. There is no point buying or investing in something just to get a tax deduction. If you are buying, say, a till for a shop or a forklift for a warehouse, the most important thing is to be sure that there is a genuine business need for that piece of machinery.
Having said that, over the next year it will definitely be a good time to upgrade. The tax deduction should be at marginal rates for sole proprietors of small businesses. For incorporated small businesses, the issue starts to get a bit more complicated and these sorts of businesses should talk to their tax adviser before purchasing, because the large tax deduction may have an impact on their ability to pay franked dividends.
Q: Comment in the media has been that anyone with an ABN can claim the instant write off. Is this the case?
A: You will need to be a “small business entity” which means that you will need to be carrying on a business in the current year. It is not enough to merely have a current ABN.
If you do some consulting work or run a business on the side, you will need to satisfy the definition of “small business entity” in relation to that consulting work or side business. And if you then make a big purchase, say on a computer or some office furniture, you will have additional hoops to get through in order to be able to deduct losses incurred from the consulting work or in the small business against your other income.
Q: For those running a home office, do the usual rules apply, in terms of apportioning the cost between personal and business use?
A: Yes. The big issue here will be whether you have a “place of business” or a home office. There are tough restrictions on those that have a room in a home that is used as a study or a home office merely as a matter of convenience. As in the previous question, only those running genuine businesses will be able to access the special $20,000 write off.
So in short, the $20,000 tax write-off could be great for your business – provided you really are running a business and meet the other eligibility requirements! But whatever your situation, talk with your accountant before making any expensive purchase decisions.
Government incentives for small business
The Australian Federal Government offers several grants designed for small business, so it’s worth applying for any that you are eligible for.
The 2016-2017 Federal Budget also introduced several measures to help out small businesses, including:
- Redefining a “small business” by increasing the annual turnover threshold from $2 million to $10 million (from 1 July 2016). This means more businesses now benefit from small business tax concessions. This one hasn’t been legislated yet and is currently going through Parliament. Watch this space!
- Increasing the small business tax discount to include sole traders, partnerships and other unincorporated businesses with an annual turnover of less than $5 million. Previously the threshold was $2 million, so this means that more small businesses will now benefit from paying 28.5% tax instead of 30% tax. Incentives to trial youth job seekers – the PaTH (Prepare-Trial-Hire) Programme:
- This program offers $1,000 upfront to a business that takes on a government-trained intern for 4-12 weeks. (Interns have done 6 weeks of government-run employability skills training.)
- Employers then receive a wage subsidy of up to $10,000 paid over 6 months if they employ a person under 25 years old who has barriers to employment, or $6,500 paid over 6 months if they hire a job-ready job seeker. This isn’t just good for businesses – it’s great for the job seeker, and the economy.
- Funding entrepreneurial self-employment opportunities for young job seekers – the New Enterprise Incentive Scheme (NEIS). Includes workshops, business mentoring and support, and Self-Employment and Entrepreneurship Starter Packs of business resources.
Beyond that, our local state and territory governments have their own incentives on offer for small businesses:
- Queensland Government Grants and business support and Startup Events and Activities Fund
- NSW Office of State Revenue Small Business Grant
- Victorian Government Grants, vouchers, and assistance programs
- South Australian Government Funding and grants for business
- Western Australian Government Business awards, grants, and rebates
- Tasmanian Government Business grants, funding, and assistance
- Northern Territory Government Grants directory