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  • The Simplified Tax System

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    Warning:

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

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    The Simplified Tax System (STS) commenced on 1 July 2001 and applies to assessments for income years starting on or after that date.

    The STS is an alternative method of determining taxable income for eligible small businesses with straightforward financial affairs. To be eligible to be an STS taxpayer for an income year, you must satisfy 3 requirements. You must:

    • carry on a business in that year
    • have an STS average turnover for that year of less than $1 million (including the turnover of any entities that are grouped with you)
    • together with any grouped entities, hold depreciating assets with a total adjustable value at the end of the year of less than $3 million.

    'Grouping rules' operate to prevent ineligible businesses from structuring or restructuring their affairs to take advantage of the STS.

    Participation in the STS is optional. If you are eligible and decide to enter the STS in an income year, you make an election on your income tax return for that year. You must review your eligibility each year. The STS has 3 elements:

    • a cash accounting method that recognises most business income and expenses only when they are received and paid
    • simplified trading stock rules where businesses only need to conduct stocktakes and account for changes in the value of trading stock in limited circumstances
    • simplified depreciation rules where depreciating assets costing less than $1000 each (excluding input tax credit entitlements) are written off immediately. Most other depreciating assets are pooled and deducted at a rate of 30 per cent for the general STS pool or 5 per cent for the long-life STS pool for depreciating assets with an effective life of 25 years or more.

    Note

    There are special rules under the uniform capital allowance system (UCA) for working out the decline in value of certain depreciating assets used by a taxpayer in the course of carrying on a business of primary production, such as those applying to landcare operations, water facilities, electricity connections and telephone lines. For these assets, you can choose whether to use the STS provisions or the UCA provisions. However, the cost of horticultural plants (including grapevines) cannot be deducted under STS depreciation rules.

    STS taxpayers can also claim an immediate deduction for certain prepaid expenses.

    Last modified: 28 Oct 2003QC 27421