Small Business Tax Rate for 2020 & 2021

Tax for Small Business

In this article we look at tax rates for small business in 2020 and 2021.

Small Business Tax Rates for FY2020, 2021 and beyond

Tax rates are complex with different entities paying different rates of tax. If you are operating a small business as a sole trader then you will be paying income tax with the rates unchanged since last year.

If you use a company to run your business and your business turnover is less than $50 million your tax rate for the FY2020 tax year will be 27.5% which is also the same as in FY2019 tax year.  The good news is that in the FY2021 tax year this rate will fall to 26% and then in the FY2022 tax year it will fall to 25%.

Asset Write-offs

You have always been able to claim a tax deduction for any assets that you purchase to run your business. But the deduction for an asset, over a set threshold, is based on depreciation or the falling value of the asset. For example, if you bought a new car that cost $40,000, you could claim back a portion of the cost of the computer every year for eight years. So, you had a shelled out the $40,000 up front, but you would only get a $5000 deduction each year for eight years.

One way that governments like to help small business is by making it easier to claim back tax on assets. Over the last five years the government has raised the threshold. They believe that this provides an incentive for small business to invest in the assets that make them more efficient.

For most of the 2019/20 tax year the threshold over which you would have to go to a depreciation method of claim the asset against your tax was $30,000. So any asset that you purchased and started using between 1/7/2019 and 11/3/2020 that cost less than $30,000 is allowed as a full deduction (with a small number of exceptions – check with your accountant).

Then in March the government decided to really give small business a leg up. The threshold was raised to $150,000. So, any asset that you purchase and start using up until 31/12/2020 and that cost less that $150,000 is a straight deduction off your tax. (You will need to check the rules in detail as there are some twists.)

Effectively the government is providing you with the same deduction you would have received over the life of the asset in the first year. Going back to our example, instead of getting a deduction for a portion of our cars purchase price every year for eight years, we get the deduction in year one. This makes it very attractive to buy assets before December 31.

Business tax can be complex.  If need an accountant who can provide help, reach out to Fullstack today.

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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech & online companies.

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