Over the past few years, there have been many changes happening to small businesses, especially during the lockdowns. Almost every sole trader and small business have to consider work from home during the pandemic time. This has led to new deductions introduced by the federal government.
Taxpayers should know that the Federal government has been lenient about the tax burden and the regulations for small companies, along with specific measures stated in the Federal budget of May 2021. These savings and deductions are specially created for partnerships, sole traders, start-ups, and small business owners.
Tax Incentives And Rebates For Start-ups
In the last few years, the Federal Government introduced a set of tax regulations to ensure small business start-ups foster a vibrant technology sector or entrepreneurship.
For instance, some deductions are available when a new start-up occurs, including accounting, legal, and professional advice and government charges and fees. The government has set the bars at less than $50 million turnovers annually, which most start-up companies cannot achieve during the initial stage of their business.
Apart from this, some regulatory concessions allow small companies to make changes in their legal structure and transfer assets between one entity to another without paying any taxes.
Another incentive is associated with the science and technology sector, where the main agenda of these incentives is to attract more investors to put their money into start-ups. As you already know that most start-ups are financed by their founders. This can also apply to business owners.
Once a start-up is qualified as an innovation company during its initial stages, then the eligible investors will receive 20% carry-forward tax off on their total investment, which is fixed $200000 per year per investor.
Apart from this, they will also get a 10-year exemption on any arising CGT against the investment in shares for at least 12 months. Remember, the shares should not be more than 30 per cent of the company’s stake.
Tax Deductions For Partnerships And Sole Traders
The partnership and sole trading arrangements are the simplest business models. All you have to do is get registered with a business name and ABN before you start trading. The best part is if your annual revenue is less than $75000, you don’t have to apply for GST.
However, the major deductions for these business models are associated with operational and occupancy expenses such as motor vehicle expenses. If you operate the business in the owner’s home, either owned, on a mortgage, or rented, you are eligible to claim some shares of those expenses.
To do that, your business must pass the interest deductibility test, which means your premises should have the characteristics of a business place. A sign or shingle at the front might help in identifying your business.
Tax For Small Companies With 20 Or Fewer Employees
Over two million small companies in Australia have less than 20 personnel, contributing to 97% of the total employees in Australia. You should know that the survival rate of these businesses is quite low as compared to larger ones.
However, small companies with solid cash flows can get a reduction in their tax obligation through the prepayment of upcoming expenses like interest on loans and professional subscriptions.
The best part is the Federal budget removes all exclusion applied to the first $250 spent for educational courses, allowing business owners to learn new skills.
Apart from these deductions, the recent budget also includes incentives to help in this pandemic situation. That means small businesses can benefit from these deductions when hiring new employees, as these are specially designed to improve the employment rate.
The ATO introduces some concessions on losses for unsuccessful businesses, allowing businesses to carry forward their tax obligation to earlier years. This could result in a reduction in tax obligation to the ATO.