Eligibility for small business entity concessions, simplified depreciation rules, and rollover relief.
Small business entities may qualify for a range of tax concessions. You are eligible to be a small business entity for an income year if:
- you carry on a business in that year, and
- you have an aggregated turnover of less than $10 million.
The aggregation rules use the concepts of ‘connected with’ (which is based on control) and ‘affiliates’ to determine whether the turnover of any related business needs to be included in the aggregated turnover of your business.
Businesses that would be small business entities if the aggregated turnover threshold was less than $50 million may also be eligible for certain start-up expenses to be immediately deductible.
You must assess your eligibility for the concessions each income year.
For more information see Small business entity concessions – Eligibility.
If you are an eligible small business, you may choose to calculate deductions for your depreciating assets using these rules.
Simplified depreciation rules for small businesses include:
- an instant asset write-off for assets that cost less than the relevant threshold
- a general small business pool for assets that cost the same or more than the relevant threshold, which has simplified calculations to work out the depreciation deduction.
However, small businesses using the simplified depreciation rules cannot apply the instant asset write-off threshold for assets they started to hold and first used, or had installed ready for use, for a taxable purpose after 7.30pm AEDT on 6 October 2020 to 30 June 2023.
Under temporary full expensing:
- you must immediately deduct the business portion of the asset's cost
- you must claim
- a deduction for the cost of improvements made after 7.30pm AEDT on 6 October 2020 to 30 June 2023 to an asset that you wrote off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset
- an immediate deduction for the taxable purpose portion of the improvement cost and no threshold applies
- a small business using simplified depreciation must deduct the balance of their general small business pool for an income year ending between 6 October 2020 and 30 June 2023 inclusive.
You cannot opt out of temporary full expensing for assets to which the simplified depreciation rules applied in 2021–22. If you do not want to apply temporary full expensing, you need to opt out of the simplified depreciation rules for 2021–22. However, you must still deduct the balance of your small business pool in the income year you choose to opt out of the simplified depreciation rules.
The 'lock out' rules – that prevent small businesses from re-entering the simplified depreciation regime for five years after they opted out – have also been suspended for 2021–22, and are suspended until the end of an income year that includes 30 June 2023.
If you choose to use the simplified depreciation rules, you must:
- use them to work out deductions for all your depreciating assets except those specifically excluded
- apply the entire set of rules, not just individual elements
- only claim a deduction for the portion of the asset used for business or other taxable purposes and not for the portion for private use.
A small number of assets are excluded from the simplified depreciation rules and a car limit applies to the cost of passenger vehicles.
For more information see Simpler depreciation for small business.
As part of the small business tax concessions, you may be able to defer any gain or loss resulting from a transfer of a depreciating asset between entities with the same economic ownership under the small business restructure roll-over concessions, which apply from 1 July 2016.
Modifications, under the Commissioner's remedial power, may apply to the asset disposal to prevent unintended taxation consequences where:
- a transfer takes place on or after 8 May 2018, and
- the asset transferred satisfies conditions under a small business restructure roll-over.
For more information, see:
- Small business restructure rollover
- CRP 2017/2 Taxation Administration (Remedial Power – Small Business Restructure Roll-over) Determination 2017.
Continue to: Certain start-up expenses immediately deductible