Hidden benefits for small business in the 2018 budget
Small business owners could be forgiven for thinking that the 2018 federal budget did not hold much for them, apart from the extension to the deadline that they can claim a tax deduction for assets costing less than $20,000. A careful reading of the budget reveals other benefits and one new penalty for the small business sector.
In addition to small business owners receiving an income tax benefit from the extension of the deadline for claiming assets costing up to $20,000 from June 30, 2018, until June 30, 2019, and also benefiting from the new low and middle-income tax offset, there was a new policy that could result in some small business owners losing a tax deduction for payments to employees and contractors.
Under the measure, which will apply from July 1, 2019, if a business does not withhold the correct amount or any Pay-As-You-Go withholding tax from employees and/or contractors, that business will not get a tax deduction for the amounts paid.
This means businesses trying to help contractors and employees by not deducting the correct amount of PAYG withholding tax, or that use cash to pay employees and contractors that is not declared as income, will in addition to penalties levied by the tax office not be able to claim a tax deduction for the amounts paid.
The new low and middle-income tax offset will work as a reduction in tax payable, up to a maximum of $530 for people with taxable income between $48,001 and up to $90,000. The offset will be available in addition to the low-income tax offset and the small business income tax offset.
The real pleasant surprises from the federal budget had nothing to do with income tax, but instead related to how small business owners qualify for certain Centrelink benefits. Under current Centrelink rules a person’s eligibility for the age pension depends on an income test and an asset test.
Under the current income test, to encourage Australians to work longer, there is a work bonus of $250 per fortnight that is excluded from the income of an employed Australian eligible to receive the age pension.
Unfortunately small business owners operating as sole traders or in a partnership have all of the net income that they earn counted, and are currently not eligible for the $250 per fortnight income exemption.
If the 2018 budget measure is passed small business owners will be eligible for the increased $300 per fortnight work bonus. This would mean a small business owner that has a net income of $20,000 for the 2020 financial year, rather than have all of the income counted under the age pension income test as currently occurs, would only have $13,000 counted.
The other benefit that small business owners will have an opportunity to qualify for, that previously they could not access due to the pension income test, is the Commonwealth government pension loan scheme. Under this scheme people can use the equity in their home to take out a loan to help fund their retirement living expenses.
Max Newnham is a partner in TaxBiz Australia and founder of SMSF Survival Centre. Email questions to firstname.lastname@example.org.