• S1 Simplified tax system (STS) elections

    Are you eligible to enter or continue in the STS and want to do so, or are you exiting the STS?

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    No

    Go to P1 Personal services income (PSI).

    Yes

    Read on.

    You need to know

    The STS has three main elements:

    • STS cash accounting
    • simplified trading stock rules, and
    • simplified depreciation (capital allowance) rules.

    In addition, the STS 12-month rule allows an immediate deduction for prepaid expenses where the payment is incurred for a period of service not exceeding 12 months and the period of service ends in the next income year.

    Participation in the STS is optional where you satisfy the eligibility tests.

    If you choose to participate in the STS, you must use all three elements, where they apply. The STS accounting and the simplified depreciation (capital allowance) rules apply to your non-business income and deductions as well as business income and deductions. However, the STS depreciation rules do not apply to depreciating assets used in rental properties.

    If you choose to leave the STS, you cannot re-enter the STS again until at least five years after the income year for which you were last an STS taxpayer. If you must leave the STS because you are no longer eligible, you can become an STS taxpayer again for an income year as soon as you are eligible.

    For more information about the STS:

    • see The simplified tax system - a guide for tax agents and small businesses (NAT 6459)
    • visit our website, or
    • phone the Business Infoline (see More information).

    If you want to enter the STS and are eligible to do so, you must complete G, H and I item S1. If you want to continue in the STS and are eligible to do so, you must complete G, R and I item S1.

    If you are exiting the STS, you must complete S or T item S1. Go to Exiting the STS.

    If you are not eligible to enter the STS or are eligible but do not want to enter the STS go to item P1.

    See the note regarding transitional arrangements about re-entering the STS.

    Note

    If you are a partner in a partnership and the partnership is eligible and wants to enter the STS, the election to enter must be made at item 3 on the partnership's tax return. You do not complete item S1.

    If you carry on a business separate to the partnership and you are eligible to enter the STS, you can also elect to enter the STS by completing item S1.

    Eligibility

    For the year of income you must have satisfied all three of the following eligibility tests.

    Test 1: Were you carrying on a business during the year?

    If you carried on a business at any time during the year, you satisfy this test. Go to Test 2.

    Test 2: Is your STS average turnover less than $1 million?

    You work out your STS average turnover for an income year either by looking back to actual turnover in previous years, or looking forward to estimated future turnover.

    Before you can work out your STS average turnover you need to know your STS group turnover.

    Your STS group turnover is the value of business supplies you make in the ordinary course of your business and the value of business supplies any businesses you are grouped with make in the ordinary course of their business. It does not include any business supplies made between you and businesses you are grouped with.

    For more information, phone the Business Infoline (see More information) or see Taxation Ruling TR 2002/11 - Simplified tax system eligibility - STS average turnover.

    Look back method

    Under the look back method, your calculate your STS average turnover using the average of your STS group turnovers of any three years out of the previous four income years (excluding the current year).

    If you have been in business for less than three years, you will need to calculate your STS average turnover for the number of years you have been in business (excluding the current year).

    If your business has operated for only part of any of those years, you must use a reasonable estimate of what your turnover would have been if you were in business for the full year.

    Use worksheet 1 to assist you with your calculation.

    Worksheet 1

    Income year

    STS group turnover

    2000-01

    $

    2001-02

    $

    2002-03

    $

    2003-04

    $

    Cross out the largest turnover amount if you have been in business for each of the four income years.

    Total of the three* years

    $

    (divide by 3*)

    STS average turnover

    $

    * or the number of years you have been in business if less than three years

    If your STS average turnover is less than $1 million you satisfy this test. Go to Test 3. Otherwise read on.

    Look forward method

    Under the look forward method you calculate your STS average turnover using a reasonable estimate of STS group turnovers for the current year and the following two years. Alternatively, you can use your actual STS group turnover for the current year and a reasonable estimate of your STS group turnover for each of the following two income years.

    If your business (or a grouped entity) has operated for only part of the current year, you must use a reasonable estimate of what your STS group turnover for this year would have been if you (and the grouped entity) had carried on a business throughout this year.

    Use the following worksheet to assist you with your calculation.

    Worksheet 2

    Income year

    STS group turnover

    2004-05

    $

    2005-06

    $

    2006-07

    $

    Total of the three* years

    $

    (divide by 3*)

    STS average turnover

    $

    * or the number of years you expect to be in business if less than three years

    If your STS average turnover is less than $1 million you satisfy this test. Go to Test 3.

    Test 3: Did you and any businesses you were grouped with have depreciating assets with a total adjustable value of less than $3 million at 30 June 2005?

    This test only includes depreciating assets for which a deduction has been allowed or is allowable under the STS or uniform capital allowance (UCA) rules.

    Broadly, the adjustable value of a depreciating asset is its cost less its decline in value since it was first used, or installed ready for use for any purpose whether business or private. It is the value at the end of the year of income that is relevant.

    If the total adjustable value of your depreciating assets and those of entities you are grouped with for the income year ended 30 June 2005 was less than $3 million at this time, you satisfy this test.

    Did you satisfy all three eligibility tests?

    No

    You are not eligible to enter or continue in the STS. If you were not in the STS in the prior year, go to item P1. If you were in the STS in the prior year and are no longer eligible, you must exit the STS. Read on.

    Yes

    Read on.

    Completing this question

    Entering the STS

    If you want to enter the STS and are eligible to do so, complete G, H and I item S1.

    • Print X in the Yes boxes at G and H item S1.
    • Print X in the Yes box at I item S1 if you are grouped with another entity for any year relevant to your calculation of STS average turnover; otherwise print X in the No box.

    Continuing in the STS

    If you want to continue in the STS and are eligible to do so, complete G, R and I item S1.

    • Print X in the Yes boxes at G and R item S1.
    • Print X in the Yes box at I item S1 if you are grouped with another entity for any year relevant to your calculation of STS average turnover; otherwise print X in the No box.

    Exiting the STS

    If you do satisfy all three eligibility tests but want to exit the STS, complete S item S1.

    Print X in the Yes box at S item S1. Leave all other boxes blank.

    If you do not satisfy all three eligibility tests you must exit the STS by completing T item S1.

    Print X in the Yes box at T item S1. Leave all other boxes blank.

    If you choose to leave the STS, you cannot re-enter the STS until at least five years after the income year for which you were last an STS taxpayer.

    However, if you must leave the STS because you are no longer eligible, you can become an STS taxpayer again for an income year as soon as you are eligible.

    Note

    A number of legislative changes have recently been made concerning STS and STS taxpayers for the 2005-06 and later income years. Under transitional arrangements, if you chose to exit the STS for an income year beginning before 1 July 2005, you will be able to re-enter the STS during the period of five years starting on 1 July 2005 (if you are eligible) without having to wait five years.

    Last modified: 15 Mar 2007QC 27592