Tax concessions for small businesses have changed and been expanded this year. Learn about what new tax concessions, write-offs and other deductibles are available for small business in 2021.
Temporary full expensing
Eligible businesses with an aggregated turnover of less than $5 billion can deduct the business portion of the cost of eligible new depreciating assets. These assets must be first held and first used, or installed ready for use for a taxable purpose, between 7.30pm (AEDT) on 6 October 2020 until 30 June 2022.
For small and medium sized businesses (aggregated turnover of less than $50 million), temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.
Businesses can also apply temporary full expensing to the business portion of the cost of improvements made to eligible depreciating assets. This applies even if those assets were acquired before 7.30pm (AEDT) on 6 October 2020.
Under temporary full expensing, small businesses also deduct the balance of their small business pool at the end of the income years ending between 6 October 2020 and 30 June 2022.
Small businesses will need to apply the simplified depreciation rules to claim temporary full expensing. From 7.30pm (AEST) 12 May 2015 to 30 June 2022, the ‘lock out’ rules are suspended to allow small businesses that choose to stop using the simplified depreciation rules to take advantage of temporary full expensing and the instant asset write-off.
As part of the Budget 2021–22, temporary full expensing is to be extended for another year. The measures announced as part of the Budget are not yet law. We will update this content once the extension is law.
Instant asset write-off
There have been changes to the instant asset write-off.
From 12 March 2020, the instant asset write-off:
- threshold amount for each asset is $150,000 (up from $30,000)
- allows businesses until 30 June 2021 to first use or install the asset ready for use, provided the asset is purchased by 31 December 2020
- eligibility was expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).
To find out more about how instant asset write-off works and the thresholds, refer to Instant asset write-off for eligible businesses.
Backing business investment – accelerated depreciation
From 12 March 2020 until 30 June 2021, the Backing business investment measure provides a 15-month investment incentive to support business investment and economic growth by accelerating depreciation deductions. The key features of the incentive are as follows:
- The benefits are either
- if you are using the simplified depreciation rules for small business, you can claim 57.5% of the cost of the asset (for those assets that cost more than the instant asset write-off threshold) in the first year you add the asset to the small business pool
- if you are not using the simplified depreciation rules for small business, you can claim a deduction of 50% of the cost or opening adjustable value of an eligible asset on installation. Existing depreciation rules apply to the balance of the asset’s cost.
- Eligible businesses – businesses with aggregated turnover below $500 million.
- Eligible assets – new depreciating assets (for example, plant, equipment and specified intangible assets, such as patents). The assets must be first held, and first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021. Some exclusions apply.
You cannot claim a backing business investment – accelerated depreciation deduction if the business is eligible and uses temporary full expensing or instant asset write-off for the same asset.
Lower company tax rate changes
From the 2017–18 to 2019–20 income years, companies that are base rate entities must apply the lower 27.5% company tax rate.
The lower company tax rate for base rate entities reduced to 26% in 2020–21 and will be 25% from the 2021–22 income year. A base rate entity is a company that both:
- has an aggregated turnover less than the aggregated turnover threshold – which is $25 million for the 2017–18 income year and $50 million for the 2018–19 to 2021–22 income years
- 80% or less of their assessable income is base rate entity passive income (such as interest, dividends, rent, royalties and net capital gain) – this replaces the requirement to be carrying on a business.
When working out the rate to use when franking your distributions, you need to assume that your aggregated turnover, assessable income and base rate passive income will be the same as the previous year.
Increased small business income tax offset
You can claim the small business income tax offset if you either:
- are a small business sole trader
- have a share of net small business income from a partnership or trust.
The small business income tax offset applies to small businesses with turnover less than $5 million. The rate of offset is:
- 8% from 2016–17 to 2019–20
- 13% in 2020–21
- 16% from 2021–22.
The maximum offset is $1,000 and we work out your offset based on amounts shown in your tax return.
Expanded access to small business concessions
More businesses may now be eligible for most small business tax concessions.
From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover of less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.
The $10 million turnover threshold applies to most concessions, except for:
- the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
- capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.
The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017 and will increase to $50 million from 1 April 2021.
From 1 July 2020, businesses that are not small businesses because their turnover is $10 million or more but less than $50 million can also access an immediate deduction for certain start-up expenses and for prepaid expenditure.
From 1 July 2021, businesses that are not small businesses because their turnover is $10 million or more but less than $50 million can also access these small business concessions:
- simplified trading stock rules
- PAYG instalments concession
- a two-year amendment period
- excise concession.
