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The STS is an alternative method of determining taxable income for eligible small businesses with straightforward financial affairs. It can apply to income years starting on or after 1 July 2001. You are eligible to be an STS taxpayer for an income year if:
- you carry on a business at any time in that year
- you have an STS average turnover of less than $1 million in that year (including the turnover of any entities that are grouped with you), and
- you, together with any grouped entities, hold depreciating assets with a total adjustable value of less than $3 million at the end of the year.
Grouping rules prevent ineligible businesses from structuring or restructuring 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 three 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 stock takes and account for changes in the value of trading stock in limited circumstances
- simplified depreciation rules where most depreciating assets costing less than $1,000 each (excluding input tax credit entitlements) are written off immediately.
Most other depreciating assets are pooled and deducted at a diminishing value rate of 30% for the general STS pool or 5% for the long-life STS pool for depreciating assets with an effective life of 25 years or more. These simplified depreciation rules apply to most depreciating assets for STS taxpayers instead of the rules for deductions for the decline in value of depreciating assets (see next page) used by other taxpayers. An STS taxpayer can, however, choose whether to use the STS provisions or the special uniform capital allowance system (UCA) rules for primary production depreciating assets relating to landcare operations, water facilities, electricity connections and telephone lines. For horticultural plants (including grapevines) you must use the UCA provisions.
STS taxpayers can also claim an immediate deduction for certain prepaid expenses.
For more information, see the publication The simplified tax system - A guide for tax agents and small businesses.
Last modified: 30 Jun 2004QC 27519