Small Business Entity Concessions

From 1 July 2007, the eligibility criteria for a range of small business entity concessions have changed. These concessions were previously know as the Simplified Tax System (STS). Under the new concessions small businesses can choose the concessions that best meet their business and taxation needs.

When are you eligible?

You are eligible for the concessions if you or your partnership, trust or company:

	carries on a business, and
	has an aggregated turnover of less than $2 million.

What is ‘Aggregated Turnover’?

Aggregated turnover is the sum of the business’ turnover for the income year and the turnover of any entities that the business is connected to or affiliated with for that income year. Turnover includes all income earned in the ordinary course of business for the income year (excluding GST and fuel retail sales receipts).

What are the Concessions?

Income Tax (See summary below)

	STS Accounting method
	Simpler depreciation rules
	Immediate deductions for certain pre-paid expenses
	Simplified trading stock rules
	Entrepreneurs’ tax offset

Goods and Services Tax (GST)

	Choice to account for GST on a cash basis
	Choice to pay GST by instalments
	Annual apportionment of GST input tax credits

Capital Gains Tax (CGT)

	CGT 15 year asset exemption
	CGT 50% active asset reduction
	CGT retirement exemption
	CGT roll-over

Other

	2 year period for amending assessments (exemptions may apply)
	Small business entities can choose to use the GDP-Adjusted PAYG Instalment amount option.

Eligibility for some of these concessions will be dependent on the taxpayer satisfying some additional conditions.

Capital Gains Tax Concessions

The above capital gains tax (CGT) concessions are available to small businesses and can significantly reduce the tax payable on the sale of business assets.

Businesses that exceed the $2 million threshold will still be eligible for the CGT concessions provided that their maximum net asset value is less than $6 million.

Other changes have been made to these small business CGT concessions. Please contact us to discuss these concessions further if you plan to sell your business in the near future.

Comparison of tax treatments

Concession	Available to Small Business Entities	Normal Rules
STS accounting method	Income can be taken up when received and deductions are allowable when paid. This method is only available if you: - were in the STS in 2006–07 - have used the STS accounting method continuously since before 1 July 2005.	Taxable income is calculated under either a cash receipts or accruals basis as appropriate. Deductions allowed when expenses are incurred, regardless of when paid.
Depreciation	Immediate write-off for most depreciating assets costing less than $1,000 (ex. GST) Assets costing more than $1,000 with an effective life of less than 25 years will be depreciated at 15% in the first year & 30% thereafter. Assets costing more than $1,000 with an effective life of more than 25 years will be depreciated at 2.5% in the first year & 5% thereafter.	Immediate write-off for most assets costing less than $100 (GST inclusive) Assets costing less than $1,000 may enter a low value pool. (ie. depreciated at 18.75% in the first year & 37.5% thereafter) Other assets are depreciated over the asset’s effective life.
Prepayments	An immediate deduction is available provided that: - for 12 months or less; and - the prepaid period ends no later than the end of the next financial year. For example, insurance for the year ended 30 June 2010 could be paid in June 2009, and a full deduction will be allowed in the 2009 financial year.	An immediate deduction will only be allowed for prepaid expenses: - under $1,000; - for salary and wages; - required under law (eg. vehicle registration, workcover, FBT, PAYG withholding tax etc). For amounts over $1,000 a deduction needs to be apportioned over the income years it applies to.
Trading Stock	Where the the difference between opening and closing stock for the year can be reasonably estimated to be less than $5,000, the movement does not need to be accounted for and no stocktake is required.	All changes in the value of trading stock must be accounted for. A stocktake is required at the end of each financial year.
25% Entrepreneur tax offset	A reduction of up to 25% of the tax attributable to business income if: - Annual group turnover is less than $75,000, and - There is net small business income for the year (ie. small business turnover is more than the deductions that directly relate to that turnover)	The tax offset is not available to businesses that are not eligible small businesses.

Published : 18 September 2008