Of particular note is the proposed introduction of a $5M turnover test when dealing with small business income tax offset, and a $10M turnover test for CGT small business restructures. These additional tests mean a broader range of your clients could apply the relevant provisions.
The changes, set out in the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 (Cth), are currently undergoing passage through the Senate, with a report due on 10 October 2016.
To give you the heads up, we have set out a summary of each of these tests and when they apply below.
CGT small business relief
The $2M turnover test will continue to apply to CGT small business relief under Division 152. The Bill proposes to insert a new definition called CGT small business entity as new section 152-10(1AA).
Small business income tax offset
A new $5M turnover test will apply to the small business income tax offset under subdivision 328-F. The Bill proposes to insert a special meaning of SBE, as new section 328-357, which amends the definition of SBE under section 328-110 but only for the purposes of subdivision 328-F.
It is also proposed to increase the offset percentage over the next four (4) years, commencing 1 July 2016, changing it to 8%, 10%, 13% and 16% respectively. The maximum offset, however, is unchanged at $1,000.
CGT small business restructures
A new $10M turnover test will apply to CGT small business restructures under subdivision 328-G. The Bill proposes to amend the current definition of SBE under section 328-110, by replacing $2M with $10M.
Reduced corporate tax rate
From 1 July 2016
It is proposed to reduce the corporate tax rate for an SBE ($10M turnover test) from 28.5% to 27.5% (to be applied retrospectively).
From 1 July 2017
An aggregated turnover amount (which changes over time – see table 1 below) will apply when dealing with the reduced corporate tax rate. The Bill proposes to make the reduced corporate tax rate available to a wider range of companies than just SBEs by inserting a new definition called a base rate entity as new section 23AA of the Income Tax Rates Act 1986 (Cth). Commencing 1 July 2023, all companies will be subject to a capped corporate tax rate (which changes over time – see table 2 below).
It is important to note that the $25M threshold is not subject to the SBE turnover test exclusion, which excludes an entity from being an SBE if its aggregated turnover for the two (2) previous years exceeds the threshold amount. For example, an entity with less than $25M aggregated turnover in 2017, and with 2015 and 2016 aggregated turnover exceeding $25M, will have access to the 27.5% tax rate in 2017.