Concessions for small business entities

Are you a small business for the current year?

You are a small business if you are an individual, partnership, company or trust that:

carries on a business for all or part of the income year, and
has less than $2 million aggregated turnover.

For more information about what it means to carry on a business, refer to:

Am I in business? (NAT 2598)

Taxation Ruling TR 97/11 - Income tax: am I carrying on a business of primary production? (The examples used in this ruling relate to primary production activities, but the principles can be applied to other activities.)

Aggregated turnover

Broadly, aggregated turnover is your annual business turnover for the income year plus the annual turnover of any business that is connected with you or that is your affiliate.

You must use the aggregation rules to work out if you need to include another business' annual turnover in your aggregated turnover. These rules stop larger businesses splitting their activities to inappropriately access small business concessions.

For more information, see The aggregation rules.

Three ways to work out if you are a small business

You can work out if you are a small business for the current year in any of the following ways:

use your aggregated turnover for the previous income year
estimate your aggregated turnover for the current year as at the beginning of the current year
use your actual aggregated turnover for the current year as at the end of the current year.

Most businesses find the first method easiest.

You must:

use the same method for any connected or affiliated business
keep records of how you worked out your aggregated turnover.

There are some exceptions and limitations to the estimated current year and actual current year methods.

Method 1 - Use your previous year's aggregated turnover

If your aggregated turnover for the previous income year was less than $2 million, you are a small business for the current year.

Method 2 - Estimate your current year aggregated turnover

If your estimated aggregated turnover for the current year is less than $2 million, you are a small business for the current year.

You can only use this method if your aggregated turnover was less than $2 million for one of the last two income years.

You must work out whether your aggregated turnover is likely to be less than $2 million based on the conditions you know about at the beginning of the income year or, if you are starting a business part way through the year, at the time you start your business.

Factors to consider when estimating your turnover include:

your turnover in earlier income years
whether you plan to reduce or increase staff in the current year
whether your business operating hours will increase or decrease
whether previous extraordinary sales or product lines will be available in the current income year
whether your business will face increased competition in the current income year
whether your business activity will increase or decrease because of changing conditions.

Method 3 - Use your actual current year turnover

If your actual aggregated turnover at the end of the current year is less than $2 million, you are a small business for the current year.

If you use your actual aggregated turnover, you cannot use the goods and services tax (GST) and pay as you go (PAYG) instalments concessions for that income year. This is because you must choose these concessions earlier in the income year.

Example: A business operating for part of an income year

Rosa has a business and plans to retire in March 2011. She decides to gradually ease out of the business and doesn't take on any new clients after March 2010.

Rosa's turnover for both the 2008-09 and 2009-10 income years was more than $2 million, so she cannot estimate her turnover for 2010-11. To be an eligible small business for the 2010-11 income year, Rosa must use her actual current year turnover.

When Rosa finishes her business in March 2011, her turnover for the income year to date is $1.1 million. Rosa is an eligible small business for 2010-11 because she estimates that her turnover would have been $1.5 million for the full income year.

If you are not a small business in an income year, you may still be able to access the:

capital gains tax concessions if you pass the $6 million maximum net asset value test

fringe benefits tax concession if your combined ordinary and statutory income is less than $10 million.

Sections within Eligibility

Last Modified: Tuesday, 3 July 2012