Concessions for small business entities
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attention
Did you carry on a business at any time during the year and have an aggregated turnover of less than $2 million or are you a former simplified tax system (STS) taxpayer?
You need to know
Small businesses with an aggregated turnover of less than $2 million are called 'small business entities' and may qualify for a range of tax concessions.
Eligible businesses can choose to use the concessions that best suit their needs. It is not necessary to elect to be a small business entity each year in order to access the concessions. Nonetheless, businesses must review their eligibility each year.
The simplified tax system no longer operates. However, all of its concessions remain available to eligible businesses.
A small business entity may be eligible for the following concessions:
- CGT 15-year asset exemption
- CGT 50% active asset reduction
- CGT retirement exemption
- CGT small business rollover
- Simplified depreciation rules
- Simplified trading stock rules
- Deducting certain prepaid business expenses immediately
- Entrepreneurs tax offset
- Accounting for GST on a cash basis
- Annual apportionment of GST input tax credits
- Paying GST by quarterly instalments
- Fringe benefits tax car-parking exemption
- Pay as you go (PAYG) instalments based on gross domestic product (GDP) - adjusted notional tax
You are a small business entity if you are carrying on a business and have an aggregated turnover of less than $2 million.
Aggregated turnover is your annual turnover plus the annual turnovers of any entities that are connectedwith you or that are your affiliates (adjusted to ignore dealings between connected entities and affiliates). Using aggregated turnover prevents larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions.
You must review your eligibility each year.
For more information on the aggregation rules, see What are the aggregation rules? or phone 13 28 66.
Calculating your turnover
Turnover includes all ordinary income earned in the ordinary course of business for the income year. The following are some examples of amounts included and not included in ordinary income of a business.
Table: Calculating your turnover
Include these amounts
- sales of trading stock
- fees for services provided
- interest from business bank accounts
- amounts received to replace something that would have had the character of business income
Do not include these amounts
- GST charged on a transaction
- proceeds from the sale of business assets
- capital gains
- insurance proceeds for the loss or destruction of a business asset
- amounts received from repayments of farm management deposits
There are special rules for calculating your annual turnover if you have retail fuel sales or business dealings with associates.
The business operated for only part of the year
If you carried on a business for only part of the income year, your turnover is worked out using a reasonable estimate of what the turnover would have been if you had carried on the business for the whole of the income year. This includes winding up the business.
Satisfying the aggregated turnover threshold
Your business satisfies the $2 million aggregated turnover requirement if you meet one of the following:
- Your aggregated turnover for 2009-10 was less than $2 million.
- You estimate at the beginning of 2010-11 that your aggregated turnover for the year will be less than $2 million (and your aggregated turnover in 2008-09 or 2009-10 was less than $2 million).
- Your actual aggregated turnover, worked out at the end of 2010-11, was less than $2 million. You rely on this test only if you do not satisfy either of the other two tests above. If you satisfy this test only, you cannot use the GST and PAYG instalments concessions for 2010-11.
For more information about these small business entity concessions, see Small business entity concessions.
Former STS taxpayers
Continued use of the STS accounting method
Although the STS has now ceased, you may continue using the STS accounting method for 2010-11 if you:
- were an STS taxpayer continuously from the income year that started before 1 July 2005 and until the end of 2006-07
- used the STS accounting method from 2005-06 to 2009-10, and
- are a small business entity for 2010-11.
If you meet these three requirements, you can continue using the STS accounting method until you choose not to or you are no longer a small business entity.
If you continue to use the STS accounting method, you base the amounts you include at item P8 on the STS accounting method. If your accounting system or financial statements do not reflect the STS accounting method, you may need to make additional reconciliation adjustments at Reconciliation items item P8. If you have a particular type of ordinary income or general deduction that had to be apportioned or altered under STS (for example, double wool clips or prepayment of a business expense for a period greater than 12 months) you continue to apportion or alter them and make adjustments at Reconciliation items.
Business income and expenses that have not been accounted for using the STS accounting method, because they had not been received or paid during the previous income year, are accounted for in the current income year. You may need to make additional reconciliation adjustments at Reconciliation items.
The STS accounting method does not apply to income or deductions that receive specific treatment under income tax law, for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses.
For more information about the STS accounting method, read The simplified tax system - a guide for tax agents and small businesses or phone 13 28 66.
Last modified: 04 Mar 2016QC 28003