From 1 July 2016, the small business turnover threshold has increased from $2 million to $10 million. However, thresholds for the small business CGT concessions remain at $2 million turnover or $6 million net asset test, and small business tax discount has a $5 million turnover threshold. 

Small business company tax rate

From 1 July 2016, the income tax rate applicable to qualifying companies reduced to 27.5%. The reduction progressively applied to companies based on their aggregated turnover in the years in question. 

The 27.5% tax rate will apply to companies as follows:

 Year ended 30 June Turnover
2017 $10 million
2018 $25 million
2019 $50 million

To qualify for the reduced income tax rate, companies must satisfy the passive income test (derive no more than 80% of their income from passive sources, as defined in the legislation).

In addition to prescribing the income tax rate applicable to companies, the turnover and base rate entity passive income test is also relevant to determining the rate at which companies can frank their dividends for an income year. It is important to note that, under the legislation, a company may have an income tax rate that is different from its franking rate.

Companies need to monitor their income tax rates as these may change from year to year. In particular, where rates are changing across years, companies may seek to time the derivation of income and/or the incurring of deductible expenses to take advantage of the changing rates (subject to prepayment rules and general anti avoidance rules).

Trapped franking credits

From a franking perspective, a company's maximum franking rate is determined according to its corporate franking tax rate. For 30 June 2019, the company will have a 27.5% corporate franking tax rate where its turnover for 30 June 2018 is less than $50 million and it satisfies the base rate entity passive income test based on its 30 June 2018 income.

If the company pays a franked dividend based on profits of a previous year where the company's tax rate was higher than the franking rate for the current year, there may be trapped franking credits eg previous year rate 30% and current year franking rate 27.5%, then 2.5% franking credits trapped in company.

Companies need to consider which franking rate they are subject to in the 30 June 2019 year, and which rate they will be subject to next year. Where the company may move from a 30% franking company in 2019 to a 27.5% franking company in 30 June 2020, there may be advantages in paying franked dividends prior to 30 June 2019 (subject to the position of the shareholders).

Small business restructure rollover relief

From 1 July 2016, small businesses (<$10 million turnover threshold) can use the small business restructure relief, which allows eligible taxpayers to transfer assets between related entities, including companies, trusts and individuals, without any income tax or CGT consequences. While this rollover can be very beneficial to a small business, care needs to be taken as the eligibility rules can be complex in some cases.

Superannuation guarantee contributions

The rate for superannuation contributions by employers on behalf of their employees under the superannuation guarantee for the year ended 30 June 2019 is 9.5%.

Employers must make superannuation guarantee contributions for their employees on a quarterly basis within 28 days after the end of each quarter (September, December, March and June).

Although the June 2019 quarter superannuation guarantee contribution does not have to be paid until 28 July 2018, tax deductions for the superannuation contributions will only be available in the 30 June 2019 tax year if the contribution is received by the superannuation fund by 30 June 2019.