16 September 2024
Knowledge about tax credits and incentives can significantly impact your bottom line. In Australia, various tax benefits support small businesses, reduce tax liability, and encourage growth. This article explores key tax credits and incentives available to small businesses—maximising your tax position.
One of the most accessible tax incentives for small businesses is the Small Business Income Tax Offset. This offset provides unincorporated small businesses with a tax reduction of up to $1,000 annually. It is calculated based on the proportion of tax payable on your business income. This offers a straightforward way to lower your tax burden. To qualify, your business must have an aggregated turnover of less than $5 million, and you must be operating as a sole trader or have a share of net small business income from a partnership or trust.
The Research and Development (R&D) Tax Incentive provides a substantial tax offset for small businesses engaged in innovation. This incentive is available to entities conducting eligible R&D activities, offering a refundable tax offset with an aggregated turnover of less than $20 million. For larger businesses, a non-refundable tax offset is available. This program encourages innovation by reducing the financial risks in developing new products, services, or processes.
Claiming GST credits can significantly reduce taxable income. GST credits, also known as input tax credits, allow businesses to claim back the GST paid on purchases used in their business operations. To claim a GST credit, the purchase must be for business use, the supplier must be registered for GST, and you must have a tax invoice. This process helps reduce the overall cost of goods and services, ultimately improving profitability.
Another valuable incentive for small businesses is the Instant Asset Write-Off scheme. This initiative allows eligible businesses to immediately deduct the cost of purchasing assets, such as machinery, vehicles, and equipment, up to a specific threshold. This deduction can be claimed for each asset purchased and installed for use within the relevant income year. The Instant Asset Write-Off helps reduce taxable income and encourages businesses to reinvest in their operations.
On 30 April 2023, the Australian Government announced it will provide businesses with an annual turnover of less than $50 million with an additional 20% deduction on spending that supports electrification and more efficient use of energy. This measure is now law.
The energy incentive applies to eligible expenditure on assets between 1 July 2023 and 30 June 2024 (‘the bonus period’). It also applies to eligible expenditure on improvements to existing assets incurred during the bonus period. You can find out more here.
The energy incentive helps small businesses make investments like:
Small businesses with an aggregated annual turnover of less than $50 million can benefit from an additional 20% tax deduction for external training courses provided to employees by registered training providers. This initiative aims to enhance skills and training within eligible businesses, fostering growth and development. You can find out more here.
Understanding these opportunities can lead to substantial savings. It can cut costs by reducing tax liabilities, allowing reinvestment in business growth. It also boosts cash flow which enhances financial stability.
Small business owners should remain vigilant about changes in tax regulations and consult with tax professionals to ensure they take full advantage of all available deductions and credits. The tax landscape is continually evolving, and staying informed can make a difference in your financial plan.
Need help navigating Australia’s complicated tax landscape? Contact Retinue on 1800 861 566 to get started.
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