• Concessions for small business entities

    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

    Did you carry on a business at any time during the year and have an aggregated turnover of less than $2 million?

    No

    Go to P1 Personal services income (PSI).

    Yes

    Read on to find out more about concessions for small business entities.

    You need to know

    Small businesses with an aggregated turnover of less than $2 million are called 'small business entities' and may qualify for a range of tax concessions.

    Eligible businesses can choose to use the concessions that best suit their needs. It is not necessary to elect to be a small business entity each year in order to access the concessions - however, businesses must review their eligibility each year.

    A small business entity may be eligible for the following concessions:

    • CGT 15-year asset exemption
    • CGT 50% active asset reduction
    • CGT retirement exemption
    • CGT small business rollover
    • Simplified depreciation rules
    • Simplified trading stock rules
    • Deducting certain prepaid business expenses immediately
    • Entrepreneurs tax offset
    • Accounting for GST on a cash basis
    • Annual apportionment of GST input tax credits
    • Paying GST by quarterly instalments
    • Fringe benefits tax car-parking exemption
    • Pay as you go (PAYG) instalments based on gross domestic product (GDP) - adjusted notional tax

    Eligibility

    You are a small business entity if you are carrying on a business and have an aggregated turnover of less than $2 million.

    Aggregated turnover is your annual turnover plus the annual turnovers of any entities that are connectedwith you or that are your affiliates (adjusted to ignore dealings between connected entities and affiliates). Using aggregated turnover prevents larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions.

    You must review your eligibility each year.

    For more information on the aggregation rules, see What are the aggregation rules? or phone 13 28 66.

    Calculating your turnover

    Turnover includes all ordinary income earned in the ordinary course of business for the income year. The following are some examples of amounts included and not included in ordinary income of a business:

    Table: Calculating your turnover

    Include these amounts

     

    Do not 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

     

    • GST charged on a transaction
    • proceeds from the sale of business assets
    • capital gains
    • insurance proceeds for the loss or destruction of a business asset
    • amounts received from repayments of farm management deposits

     

    There are special rules for calculating your annual turnover if you have retail fuel sales or business dealings with associates.

    The business operated for only part of the year

    If you carried on a business for only part of the income year, your annual turnover is worked out using a reasonable estimate of what the turnover would have been if you had carried on the business for the whole of the income year. This includes winding up the business.

    Satisfying the aggregated turnover threshold

    Your business satisfies the $2 million aggregated turnover requirement if you meet one of the following:

    • your aggregated turnover for 2010-11 was less than $2 million
    • you estimate at the beginning of 2011-12 that your aggregated turnover for the year will be less than $2 million (and your aggregated turnover in 2009-10 or 2010-11 was less than $2 million), or
    • your actual aggregated turnover, worked out at the end of 2011-12, was less than $2 million. You rely on this test only if you do not satisfy either of the other two tests above. If you satisfy this test only, you cannot use the GST and PAYG instalments concessions for 2011-12.

    For more information about these small business entity concessions, see Small business entity concessions.

    Former simplified tax system (STS) taxpayers

    Continued use of the STS accounting method

    Although the STS has now ceased, you may continue using the STS accounting method for 2011-12 if you:

    • were an STS taxpayer continuously from the income year that started before 1 July 2005 and until the end of 2006-07
    • used the STS accounting method from 2005-06 to 2010-11, and
    • are a small business entity for 2011-12.

    If you meet these three requirements, you can continue using the STS accounting method until you choose not to or you are no longer a small business entity.

    If you continue to use the STS accounting method, you base the amounts you include at item P8 on the STS accounting method. If your accounting system or financial statements do not reflect the STS accounting method, you may need to make additional reconciliation adjustments at Reconciliation items item P8. If another provision of the income tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in the specific provision overrides the received or paid rule under the STS accounting method - for example, double wool clips or prepayment of a business expense for a period greater than 12 months. Because of these specific provisions, you may need to make adjustments at Reconciliation items.

    The STS accounting method does not apply to income or deductions that receive specific treatment under income tax law - for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses.

    Ceasing use of the STS accounting method

    If you have discontinued using the STS accounting method, then business income and expenses that have not been accounted for (because they have not been received or paid) will be accounted for in this year. You may need to make additional reconciliation adjustments at Reconciliation items.

    There is also a special rule that applies if you are winding up a business this year that you previously carried on and you were an STS taxpayer in the income year you ceased business. For more information, see Small business entity concessions.

    Last modified: 04 Mar 2016QC 25649