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 are not small businesses because their turnover is $10 million or more but less than $50 million can also access an immediate deduction for certain start-up expenses and for prepaid expenditure.
Small business technology investment boost
The Treasury Laws Amendment (2022 Measures No. 4) Act 2023 (Act No. 29 of 2023) provided for a temporary technology investment boost for small businesses in the form of a bonus deduction. Small businesses (with an aggregated annual turnover of less than $50 million) are able to claim the bonus deduction as an additional 20% deduction, on top of their ordinary deduction, for eligible expenditure incurred and depreciating assets acquired, for the purposes of their digital operations or digitising their operations. The maximum additional deduction is $20,000 per income year. It applies to eligible expenditure of up to $100,000 per income year incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2023.
If the expenditure is on a depreciating asset, the entity is eligible for this bonus deduction only if the asset is first used, or installed ready for use, before 1 July 2023. It does not apply to expenses incurred in the development of in-house software allocated to a software development pool.
An entity cannot claim the bonus deduction for expenditure on a depreciating asset if any balancing adjustment event occurs to the asset during the income year in which the entity holds the asset and incurs the eligible expenditure unless the balancing adjustment event is an involuntary disposal.
Repair and improvement costs for depreciating assets are eligible for the bonus deduction provided that these costs are incurred in the income year in which you incur the eligible expenditure.
Small business entities generally deduct the cost of a depreciating asset in one income year (under temporary full expensing or similar regime) or deduct the decline in value of the asset over its effective life (under the uniform capital allowance regime or opting out of temporary full expensing). The bonus deduction is equal to 20% of the cost of an eligible depreciating asset that is used for a taxable purpose, regardless of the method of deduction that the entity takes.
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, for assets they started to hold and first used, or had installed ready for use, for a taxable purpose after 7:30 pm AEDT on 6 October 2020 to 30 June 2023 the instant asset write-off thresholds do not apply. A small business using the simplified depreciation rules must calculate their deductions for depreciating assets using temporary full expensing.
Under temporary full expensing:
- you must immediately deduct the business portion of the asset's cost
- the asset can cost any amount and there is no threshold
- you must claim an immediate deduction for the business portion of improvement costs made after 7:30 pm 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
- a small business using simplified depreciation must deduct the balance (if any) 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 2022–23. If you do not want to apply temporary full expensing, you need to opt out of the simplified depreciation rules for 2022–23. 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 5 years after they opted out 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 rollover 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 rollover.
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