Small business entity
You're a small business entity for the four CGT concessions if you're an individual, partnership, company or trust that:
- is carrying on a business, and
- has an aggregated turnover of less than $2 million.
Aggregated turnover is your annual turnover plus the annual turnovers of any business entities that are your affiliates or connected with you.
To work out whether you're a small business entity for the current year, you need to:
Choose a calculation method
You can calculate your aggregated turnover using one of three methods: previous year, estimated current year or actual current year. Most businesses will only need to consider the ‘previous year’ method.
You must use the same method for calculating the annual turnover of your business and any affiliates or connected entities.
If your business is carried on as a partnership, it's the partnership and not the individual partner that must be the small business entity.
Method 1 – Use your previous year’s aggregated turnover
If your aggregated turnover for the previous income year was less than $2 million, you're a small business entity 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're a small business entity for the current year. However, you can use this method only if your aggregated turnover for one of the two previous income years was less than $2 million.
If you're estimating your turnover, you need to determine whether your aggregated turnover is more likely than not to be less than $2 million.
You must estimate your turnover based on the conditions that you're aware of at the beginning of the income year or, if you're starting a business part way through the year, at the time that you start your business. Factors to consider when estimating your turnover include:
- your turnover in previous income years
- whether you plan to reduce or increase staff in the current year
- whether your business operating hours are increasing or decreasing
- 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 is less than $2 million at the end of the income year, you're a small business entity for that year.
Calculate your aggregated turnover
To calculate your aggregated turnover you need to:
If the aggregation rules don't apply to you (because there are no other business entities that are your affiliate or connected with you), your aggregated turnover is the same as your annual turnover. In this case you only need to do step 1.
Step 1 – work out your annual turnover (for your previous or current year)
Your annual turnover includes all ordinary income earned in the ordinary course of business for the income year. Turnover is your gross income or proceeds, rather than your net profit.
If you operate multiple business activities, either as a sole trader or within the same business structure, you must include the income from all your activities when working out your annual turnover. For example, a sole trader operating a part-time consultancy and a retail shop would include the income from both business activities when working out annual turnover.
Include these amounts:
- sales of trading stock
- fees for services provided
- interest from business bank accounts
- amounts received to replace something that would have had the character of business income, for example, a payment for loss of earnings.
Do not include these amounts:
- GST you charged on a transaction
- amounts borrowed for the business
- proceeds from the sale of business capital assets
- insurance proceeds for the loss or destruction of a business asset
- amounts received from repayments of farm management deposits.
Special rules for calculating annual turnover
Business operated for part of the year
If you start or cease a business part way through an income year, you need to work out your turnover using a reasonable estimate of what your turnover would have been if you had carried on the business for the entire income year. This rule applies for all three methods of working out aggregated turnover.
Retail fuel sales
Do not include retail fuel sales when calculating your turnover. This is a special rule because sales of retail fuel are characteristically high in sales volume with low profit margins.
Non-arm’s length business transactions
If you have dealings with associates that are not at arm’s length (that is, the goods or services were sold at a discounted price because of their association with you) you must use the market value of the goods or services when calculating your annual turnover.
However, you may take into account any discounts that would have been offered had the dealing been at arm’s length.
As an individual, your associates include, but are not limited, to:
- your relatives, such as your spouse or children
- a partnership that you are a partner in
- another partner in that partnership, and that partner’s spouse and children
- a trustee of a trust that you, or your associate, are a beneficiary of
- a company that you, or your associate, control or influence.
There are similar rules to determine who is an associate of a company, partnership and trustee.
See also:
Step 2 – consider the aggregation rules
When working out your aggregated turnover you must include the annual turnover of any relevant business entity – that is, any business entity that, at any time during the income year, was your affiliate or connected with you.
Repeat step 1 for each relevant business entity to work out their annual turnover. You must use the same method for working out your annual turnover and the annual turnovers of all your relevant businesses entities.
See also:
Step 3 – work out your aggregated turnover
To work out your aggregated turnover, add the annual turnovers of relevant business entities to your annual turnover.
Do not include income:
- from dealings between you and a relevant business entity
- from dealings between any of your relevant business entities
- of an entity when it was not your relevant business entity.
If your aggregated turnover is less than $2 million, you're a small business entity for the current year.
If you're not a small business entity in an income year, you may still be able to access the capital gains tax concessions if you satisfy the $6 million maximum net asset value test.
Example: Aggregated turnover
Lana has an affiliate, Max, who owns a company, Maxaco.
When Lana is working out her aggregated turnover, she includes:
- Max’s turnover because Max is Lana’s affiliate
- Maxaco’s turnover because she is connected to the company through her affiliate.
Lana does not include any income from her transactions with Max or Maxaco.
End of exampleNext steps:
See also:
For the purposes of the small business CGT concessions, you're a small business entity if you're an individual, partnership, company or trust that is carrying on a business and has an aggregated turnover of less than $2 million.