Small Business Tax Trends 2024

Key Trends in Small Business Tax

Trend 1 - Lower individual income tax rates and newly-adjusted threshold

Starting in the 2024-25 financial year:

• The 19% tax rate will be reduced to 16% and apply to taxable income between AUD 18,200 and AUD 45,000.
• A new 30% marginal tax rate will apply to taxable income between AUD 45,000 and AUD 135,000.
• The 37% marginal tax rate will then apply up to AUD 190,000, after which the top marginal rate of 45% applies.
• The 37% tax bracket will be entirely abolished.

This simplifies the tax system by having only 4 marginal tax rates, down from the current 5. The lower and simplified tax rates should benefit small business owners in a few key ways:

• More take-home pay. Small business owners can keep more of their income, as they will be taxed at lower marginal rates.
• Easier tax planning. The simplified tax system with fewer brackets makes it easier for small business owners to plan and manage their tax obligations.
• Increased incentive. The lower top marginal rate of 45% (down from 47%) may incentivise small business owners to grow their businesses and incomes.
• Improved cash flow. Small business owners can reinvested the additional after-tax income they retain into the business, improving cash flow and enabling growth.

These tax changes should make it more attractive and financially beneficial for small business owners to operate and grow their enterprises in Australia. The simplified, lower tax rates provide more after-tax income and easier tax planning, supporting small businesses' vital role in the Australian economy.

Trend 2 - Enhanced utilisation of AI and digital tools for tax compliance

According to the Australian Small Business and Family Enterprise Ombudsman report, almost 98% of businesses in Australia are small businesses – a mighty 2.5 million enterprises! These businesses are the lifeblood of our economy, contributing a staggering $500 billion to our GDP and employing over 5.1 million Australians.

But let's face it, running a small business is a constant hustle. Between managing staff, marketing, and keeping the doors open, tax compliance can feel like the monster under the bed – a looming threat that sucks away precious time and resources.

This burden is especially heavy for business owners and sole traders who wear many hats. Imagine juggling customer service, product development, and suddenly becoming a tax whiz! Working out income, GST, deductions – it's enough to cause anxiety-filled nights before BAS and tax return deadlines. Here's the good news:  2024 is the year small business owners ditch the fear and embrace the power of AI-powered tools! Software like Thriday can automate tasks, categorise transactions, and even flag potential deductions, taking the headache out of tax compliance. Finally, sole traders can focus on their passion, knowing their finances are under control.

Trend 3 - Expansion of anti-avoidance rules

The 2024 expansion of anti-avoidance rules in Australia represents a significant shift in the country's tax landscape. In essence, this expansion aims to close loopholes and prevent taxpayers, including large corporations, from using complex schemes to avoid paying their fair share of taxes. The broadened General Anti-Avoidance Rule (GAAR) is a key element of this expansion, targeting arrangements that exploit international tax differentials or artificially reduce Australian tax liabilities.

While these changes might seem primarily aimed at large corporations, they also have significant implications for small business owners and sole traders. The increased scrutiny resulting from the expanded GAAR means that all taxpayers, regardless of size, must be more diligent in their tax compliance. However, this heightened scrutiny is balanced by simplifying tax laws and regulations.

This simplification can benefit small business owners and sole traders by making it easier to understand their tax obligations and ensuring they are not inadvertently engaging in tax avoidance. Additionally, the increased transparency resulting from these changes can help small businesses by creating a more level playing field, where everyone is held to the same tax standards.

Trend 4  - Incentives for small business electrification

The Australian Government has introduced the Small Business Energy Incentive program to incentivize small businesses (turnover below $50 million) to adopt more sustainable practices. This initiative offers a tax benefit for investments in electrification and energy efficiency upgrades made between July 1, 2023, and June 30, 2024.

The program offers flexibility, allowing businesses to pursue a variety of upgrades. These can include transitioning from gas-powered heating and cooling systems to electric alternatives or acquiring energy-efficient appliances. Additionally, the incentive encompasses the installation of batteries and heat pumps, promoting a shift towards sustainable business operations.

While the legislation is pending approval, businesses are encouraged to assess their energy consumption and potential investments. The Small Business Energy Incentive presents a valuable opportunity to reduce energy bills and environmental impact and position themselves for success in the transition to a more sustainable economy. It's crucial to stay informed about the program's status and act swiftly once officially implemented to maximize its benefits.

Trend 5 - Instant asset write-off threshold

Good news for small businesses! The Australian government is giving them a temporary boost to help them invest in new equipment.

Normally, businesses have to spread the cost of new equipment over several years for tax purposes. But with this increase, for eligible equipment purchased between July 1, 2023 and June 30, 2024, small businesses can immediately deduct the full cost of the equipment, up to a new limit of $20,000 (Australian dollars). This means they can immediately write off the entire cost from their taxes, which can free up cash flow.

For instance, you bought a new computer for your business for $15,000. Normally, you might have to deduct that cost from your taxes over a few years. But with this temporary increase, you can deduct the entire $15,000 immediately, which can greatly help your business finances.

Conclusion

2024 is not just a year of tax changes; it's a year of transformation. Will your small business be ready to adapt and thrive in this new era? Embracing technological advancements, such as AI-powered tools that streamline tax compliance, will be a key differentiator. By harnessing the power of automation and data-driven insights, small businesses can navigate the complexities of evolving tax laws with confidence and efficiency.
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Want help with tax this financial year? We've got your back. Book a call with Laura Thriday's Head of Accounting and Tax