2017/18 Tax Planning – Business Entities

Changes to Small Business Entity (SBE)

  • For the 2017/18, the aggregated turnover threshold is $25 million.
  • Individual taxpayers who are Small Business Entities (SBE) are now entitled to a 8% discount on the income tax payable on any SBE income received (other than a company), up to a maximum of $1,000 a year.
  • Under the current legislation, the $20,000 instant asset write-off threshold has been extended to 30 June 2018. If you are planning major purchases or replacements of capital equipment, you should contact us for specific advice as soon as possible.

Base Rate Entity (BRE)

  • From the 2017/18, companies that are Base Rate Entities (BRE) must apply the lower 27.5% company tax rate.
  • A BRE is a company that:
    • has an aggregated turnover less than the turnover threshold which is $25 million for the 2017/18, and
    • is carrying on a business.
  • The government has proposed limiting entities which are eligible for the lower tax rate to corporate entities who meet the aggregated turnover threshold and have no more than 80% BRE passive income (e.g. dividends, interest, royalties, capital gains) from 2017/18. At the time of writing, this law has not yet been passed.
  • Dividends can only be franked to 27.5% if you are a BRE.

All Business Entities

Business Income

  • Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for the 2018/19 compared to 2017/18.

Business Expenses

Ensure that you have complied with the requirements to claim deductions in 2017/18:

  • Bad debts must be written off in your accounts before 30 June
  • SBE can claim expenses prepaid up to 12 months in advance. For larger businesses, this is generally limited to expenses below $1,000.
  • Employer and/or self-employed superannuation contributions must be paid to, and received by, the super fund before 30 June to claim the tax deduction in 2017/18. Concessional contributions are capped at $25,000 for individuals of all ages (the ‘work test’ however is required to be met for individuals aged 65 to 74).
  • Depreciation can be claimed for assets first used, or installed ready for use, before 30 June
  • Wages paid to your spouse or family members must be reasonable for the work performed
  • Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value.
  • The R&D Tax Incentive (Offset) has been reduced by 1.5% for eligible entities. The rate is now 43.5%.
  • Please inform us of any capital gains or franked distributions so we may consider the streaming of income prior to finalising any distributions by 30 June.

Additional Considerations

  • If you have a trust please ensure that trust distribution resolutions and minutes are documented and signed by 30 June 2018. If these documents are not in place by 30 June 2018 then the trust will potentially be liable for tax on income at the top marginal rate. We will be in touch shortly to discuss the preparation of these documents.

Superannuation guarantee

The superannuation guarantee percentage for the 2017/18 remains at 9.5%. At this stage, the percentage will remain at 9.5% until 30 June 2021 and then progressively increase to 12% over several years.