The simplified tax system - a guide for tax agents and small businesses

Comparison of STS with non-STS treatment

This section provides an overview of the main differences between the income tax treatment of STS and non-STS taxpayers.

	STS taxpayer	Non-STS taxpayer
	An STS taxpayer is a taxpayer that is eligible and elects to enter the STS.	A non-STS taxpayer is a taxpayer that carries on a business but has not yet entered the STS.
Capital allowances (depreciation) See STS capital allowances (depreciation) rules for more information.

'Assets' mean depreciating assets. The rules about capital allowances for non-STS taxpayers have also changed from 1 July 2001.

Low-cost assets (generally assets acquired on or after 1 July 2001 costing less than $1,000)	most are eligible for an immediate deduction for the taxable purpose (eg business use) proportion of the cost of the asset See STS capital allowances (depreciation) rules for more information.	no immediate deduction for assets used in the business (including assets costing less than $300) but a deduction is allowable for certain tangible assets costing $100 or less Either: allocate to a low-value pool and deduct at 37.5%, or at half the pool rate (18.75%) in first year regardless of when during the year the asset is first used or installed ready for use, or calculate deduction for each asset based on effective life
Assets with effective life of less than 25 years	allocate most to a general STS pool pool treated as a single asset - no need to do separate calculations for each asset deduction calculated at the rate of 30% See STS capital allowances (depreciation) rules for more information.	do separate calculations for each asset deduction calculated for each asset based on the asset's effective life
Assets with effective life of 25 years or more	allocate most to a long life STS pool pool is treated as a single asset deduction calculated at rate of 5% See STS capital allowances (depreciation) rules for more information.	do separate calculations for each asset deduction calculated for each asset based on the asset's effective life
Assets acquired during an income year	deducted at half the pool rate (either 15% or 2.5%) regardless of when during the year the asset is first used or installed ready for use	must calculate the deduction on a pro-rata basis, based on the date the asset was first used or installed ready for use (unless allocated to low-value pool or an immediate deduction is available)
Primary producers	primary producers can choose between the specific primary producer provisions and the STS provisions for some assets once a choice is made in respect of an asset, it cannot be changed deductions for other assets based on effective life See Exclusions and options for more information.	there are specific primary producer provisions that apply to some assets and they must be used where they apply deductions for other assets based on effective life
Disposals	pooled asset - relevant pool balance is reduced by the taxable purpose proportion of the termination value low-cost asset - taxable purpose proportion of the termination value is included in assessable income See Disposals for more information.	an amount based on the taxable purpose (eg business use) proportion of the termination value and the adjustable value of the asset is an assessable or deductible balancing adjustment amount
Capital gains tax	no capital gain or loss taken into account in determining taxable income where the asset was deducted under the STS depreciation rules	capital gain or loss arises if an asset is used to any extent for a non-taxable purpose

More about assets costing $100 or less purchased by a non-STS taxpayer: ATO Practice Statement Law Administration PS LA 2003/8: Taxation treatment of expenditure on low cost items for taxpayers carrying on a business.

Accounting See Accounting methods for STS taxpayers for more information.	STS taxpayer	Non-STS taxpayer
Accounting method, debtors and creditors	prior to 1 July 2005 - must use the STS accounting method. Must include most business income in assessable income when received and deduct most business expenses when paid. from 1 July 2005, depending on circumstances, use either STS accounting method, accruals method or cash method Note: the requirement that an STS taxpayer must use the STS accounting method was removed as from 1 July 2005. See Accounting methods for STS taxpayers for more information.	depending on circumstances use either accruals or cash method must include business income in assessable income when derived (which may be before it is received) and deduct business expenses when incurred, or alternatively, when paid

Prepaid expenses	STS taxpayer	Non-STS taxpayer
See Prepaid expenses for more information.	immediate deduction where: the payment is made for a period of service of 12 months or less, and the period of service ends in the next income year See Prepaid expenses for more information.	no immediate deduction for prepaid business expenses must apportion the expense over the period of service transitional rules may apply

Trading stock	STS taxpayer	Non-STS taxpayer
See STS trading stock rules for more information.	not required to account for changes in value of trading stock or do a stocktake unless the difference between the value of opening stock and a reasonable estimate of closing stock is more than $5,000 can choose to account for the difference where it is $5,000 or less but must accurately determine the value of trading stock at the end of every income year, usually by carrying out a stocktake See STS trading stock rules for more information.	must account for changes in the value of trading stock must accurately determine the value of trading stock at the end of every income year, usually by carrying out a stocktake

25% Entrepreneurs' tax offset	STS taxpayer	Non-STS taxpayer
See The 25% entrepreneurs' tax offset for more information.	from 1 July 2005, a 25% tax offset on the income tax liability attributable to business income for an STS taxpayer that has an annual turnover of $50,000 or less where STS turnover is greater than $50,000 the offset will be progressively phased out between $50,000 and $75,000	no equivalent