The Simplified Tax System (STS) is an alternative method of determining taxable income for eligible taxpayers. It began on 1 July 2001.
You are eligible to be an STS taxpayer for an income year if:
- you carry on a business
- you have an STS average turnover of less than $1 million: the STS average turnover includes the turnover of any entities you are ‘grouped with’
- you together with any entities you are ‘grouped with’ have depreciating assets with a total adjustable value of less than $3 million at the end of the year.
The STS contains its own simplified capital allowance rules. If you are an eligible taxpayer and elect to enter the STS, you will generally calculate deductions for your depreciating assets using these rules.
In general, most:
- depreciating assets costing less than $1000 each (‘low-cost assets’) can be written off immediately
- other depreciating assets with an effective life of less than 25 years are pooled in a general STS pool and deducted at the rate of 30 per cent
- depreciating assets with an effective life of 25 years or more are pooled in a long-life STS pool and deducted at the rate of 5 per cent
- newly acquired assets are deducted at either 15 per cent or 2.5 per cent in the fi rst year, regardless of when they were acquired during the year.
More information on working out deductions for depreciating assets under the STS rules is provided in the publication The Simplified Tax System-a guide for tax agents and small businesses.
Assets for which deductions are claimed under the UCA
For certain depreciating assets, deductions must be claimed under the UCA rather than under the STS rules:
- assets that are leased out, or will be leased out, for more than 50 per cent of the time on a depreciating asset lease – this does not apply to depreciating assets subject to hire purchase agreements, or short-term hire agreements on an hourly, daily, weekly or monthly basis: depreciating assets used in rental properties are generally excluded from the STS capital allowance rules on the basis that they are subject to a depreciating asset lease
- assets allocated to a low-value or a common-rate pool before entering the STS: those assets must remain in the pool and deductions must be claimed under the UCA rules
- horticultural plants (including grapevines)
- in-house software where the development expenditure is allocated to a software development pool—see Software development pools on page 20.
Capital expenditure deductible under the UCA
As the STS capital allowance rules apply only to depreciating assets, certain capital expenditure incurred by an STS taxpayer that does not form part of the cost of a depreciating asset may be deducted under the UCA rules for deducting capital expenditure. This includes capital expenditure on certain business related costs and amounts directly connected with a project, see Capital expenditure deductible under the UCA for more information.
Under the UCA rules, you can choose to allocate to a software development pool expenditure you incur in developing (or having developed) in-house software you intend to use solely for a taxable purpose. Once you have allocated expenditure on such software to a pool, all such expenditure incurred thereafter, in that year or in a later year, must also be allocated to a pool. A different software development pool must be created for each year in which you have such expenditure, see In-house software.
If you have allocated such expenditure to a software development pool either before or since entering the STS, you must again allocate such expenditure to a software development pool and calculate your deductions under the UCA.
If you have not previously allocated such expenditure to a software development pool and you choose not to do so this year or if the expenditure was incurred in developing in-house software which you do not intend using solely for a taxable purpose, you can capitalise it into the cost of the unit of software developed and claim deductions for the unit of in-house software under the STS rules when it starts to be used or is installed ready for use for a taxable purpose.
Deductions for in-house software acquired off the shelf by an STS taxpayer for use in their business are available under the STS rules. For example, an item costing less than $1,000 will qualify for an outright deduction.
An STS taxpayer can choose to claim deductions under either the STS rules or the UCA rules for certain depreciating assets used in the course of carrying on a business of primary production. The choice is available for water facilities. It is also available for depreciating assets relating to landcare operations, electricity connections and telephone lines.
You can choose to claim your deductions under the STS rules or UCA rules for each depreciating asset. Once you have made the choice, it cannot be changed.