No one likes paying more than their fair share of tax. While the Government didn’t end up introducing a proposed 29 per cent tax rate for incorporated small businesses, there is still some good news on the tax front for small businesses with a couple of tax breaks coming into effect this financial year (2012-13).
Small businesses are defined as having turnover of less than $2 million annually and can be sole traders, partnerships, trusts or companies. The Australian Government estimates there are 2.7 million such businesses in Australia.
Small business can claim an immediate $5,000 write-off of the cost of any motor vehicle purchased this financial 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.
They can also claim an immediate write-off of all assets valued at under $6,500 (it used to be $1,000) and a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30 per cent. Previously, small businesses allocated assets to two different depreciation pools, with two different rates (30 per cent and five per cent).
The other tax break is "loss carry backs'', under which a company can apply operating losses to the previous year's income to reduce their tax. This year businesses can carry back up to $1 million of losses. From July 1, 2013, companies will be able to carry back losses against tax paid up to two years earlier. Unfortunately many small businesses miss out on this loss carry back benefit because it only applies to companies, not sole traders, partnerships or trusts.
As with all tax matters you are best to check with your accountant to ensure you are claiming the right tax deduction and the correct amount.
Greg Taylor is Deputy CEO and Chief Financial Officer for the Hunter-based Greater Building Society