• S1 simplified tax system (STS) elections

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Are you

    • eligible to enter or continue in the STS and want to do so, or
    • exiting the STS?

    No

    Go to P1 Personal services income (PSI).

    Yes

    Read on

    You need to know

    The STS has two key elements:

    In addition, the STS 12-month rule allows an immediate deduction for prepaid expenses where the payment is incurred for a period of service not exceeding 12 months and the period of service ends in the next income year.

    Entry into the STS is optional if you satisfy the eligibility tests.

    Note:

    When the STS began on 1 July 2001 an STS taxpayer was required to account for most business income when it was received and most business expenses when they were paid. This is referred to as the STS accounting method.

    From the first income year starting on or after 1 July 2005, you are no longer required to use the STS accounting method. You are now able to calculate your taxable income using the most appropriate method for your circumstances. However, if you were an STS taxpayer in an income year that started before 1 July 2005, then while you continue to be an STS taxpayer (from the first income year that starts on or after 1 July 2005), you can choose to continue using the STS accounting method.

    If you choose not to continue using the STS accounting method, you will be able to calculate your taxable income using either the:

    • accruals (earnings) method, that is, ordinary income is recognised when it is derived and general deductions are recognised when they are incurred, or
    • cash (receipts) method, that is, ordinary income is recognised when it is received and general deductions are recognised when they are paid or, alternatively, when they are incurred.
     

    Where you choose not to continue using the STS accounting method, business income and expenses that have not been accounted for (because they have not been received or paid) will be accounted for in the year you change to the accruals or cash method.

    If you choose to enter the STS, you must apply both the simplified capital allowances (depreciation) rules and the simplified trading stock rules, if they apply to you. The simplified capital allowances rules apply to your non-business income and deductions as well as to your business income and deductions. However, the STS capital allowances (depreciation) rules do not apply to depreciating assets used in rental properties.

    If you choose to leave the STS, you cannot re-enter the STS until at least five years after the income year for which you were last an STS taxpayer. If you must leave the STS because you are no longer eligible, you can become an STS taxpayer again for an income year as soon as you are eligible.

    See the note regarding transitional arrangements about re-entering the STS.

    For more information about the STS:

    • see The simplified tax system: a guide for tax agents and small businesses (NAT 6459-05.2004)
    • visit our website www.ato.gov.au, or
    • phone the Business Infoline on 13 28 66.

    If you want to enter the STS and are eligible to do so, you must complete G, H and I item S1. If you want to continue in the STS and are eligible to do so, you must complete G, R and I item S1.

    If you are exiting the STS, you must complete S or T item S1. Go to Exiting the STS.

    If you are not eligible to enter the STS or are eligible but do not want to enter the STS Go to item P1.

    Note:

    If you are a partner in a partnership and the partnership is eligible and wants to enter the STS, the election to enter must be made at item 3 on the partnership's tax return. You do not complete item S1.

    If you carry on a business separate to the partnership and you are eligible to enter the STS, you can also choose to enter the STS by completing item S1.

    Last modified: 01 Sep 2006QC 18499