Tax breaks to note as a new small business

If you are planning to establish a new business, here are a few income tax breaks that new businesses can use to reduce their tax liabilities:  

1. > Expenses related to the advisory for the proposed business or payments to the Australian government for establishing a business are eligible to become tax deductible for start-up businesses. That is why costs like professional fees, legal fees, accounting advisory fees, and government fees can be claimed as tax deductibles.  
   
2. > It may be possible to claim prepaid expenses immediately as a tax deduction if the payment covers a period of less than 12 months within the following financial year. 
   
3. > According to the ATO, “trading stock is anything your business acquires, produces or manufactures, for the purpose of manufacturing, selling, or exchanging”. In this rule, you can choose to conduct a stocktake or not to account for changes in the value of the trading stock at year-end for tax purposes. It might be possible not to conduct a stocktake if there is a $5,000 or less difference between the beginning value of your stocks and the estimated value of the closing stock.  
   
4. > If you are not in the “high-risk” category, you might be able to make use of the two-year amendment period starting from the issuance date of the notice of assessment.  
   
5. > You can roll over any active assets that are CGT, trading stock, revenue assets, or depreciating assets held or used for the business. This can be done legally without incurring an income tax liability.  
   
6. >Asset valuations can be used for CGT and income tax purposes. Valuing assets or liabilities is a complex process where you need to look at the guidelines set by the ATO since valuations may be required for the substitution rules used for domestic CGT and income tax purposes. This should be further discussed with your accountants.   
   
7. > Since you are now a small business, you can also utilise the CGT and other concessions. To be eligible for the CGT concessions, the asset should be actively used in the business operation or be an intangible asset. This means that the asset was active for at least half of the test period if you owned it for up to 15 years, or 7 1/2 years for assets that you’ve owned for more than 15 years.  
   The business should also satisfy either the condition of having an aggregated turnover of less than $2 million, having the sum of the net value of your CGT assets and any entities connected with you not exceeding $6 million, having the asset be an interest in the partnership, or satisfying the condition of having passively held assets.  Below are the list of CGT and other concessions that you can use:
   • Small business retirement exemption
   • Small business 50% reduction 
   • Small business 15-year exemption  
   • GST concessions – reporting the GST annually and paying it on instalments  
   • PAYG instalment concession – utilising the GDP-adjusted notional amount produced by the ATO to pay PAYG instalment

Conclusion

This article is only a sneak peek at the tax breaks that can be used by new small businesses. To smartly take advantage of these tax breaks, book a consultation with us to ensure that the business decisions are in line with your current financial position and your business goals.