For general information you may like to see:
- Records you need to keep
- Choice of super fund
- Hobby or business
- Assets put to a tax-preferred use
- Concessions for small business entities
- Former simplified tax system (STS)
You must keep records of most transactions in English for five years after you prepared or obtained them, or five years after you completed the transactions or acts to which they relate, whichever is the later. Taxation Ruling TR 96/7 Income tax: record keeping – section 262A - general principles clarifies the record-keeping obligations of small businesses, particularly for cash transactions.
If you have losses, you should generally keep records for four years from the year of income when a tax loss is fully deducted or if you have applied a net capital loss, you should generally keep your records of the capital gains tax (CGT) event that resulted in the loss until the end of any period of review for the income year in which the capital loss is fully applied. Penalties can apply if you do not keep the records for the period required.
We are helping small business operators to meet their record-keeping obligations by reviewing their record-keeping practices. These reviews start with a phone call or a brief visit to the business premises. You can ask questions and an interview is arranged for a later date.
Some of the more significant record-keeping problems we have identified are failure to:
- record cash income and expenditure
- account for personal drawings
- record goods for your own use
- separate private expenses from business expenses
- keep valid tax invoices for creditable acquisitions when registered for the goods and services tax (GST)
- keep adequate stock records
- keep adequate records to substantiate motor vehicle claims.
For more information, see Record keeping for business.
You must keep records that show you have met your choice of superannuation fund obligations.
For more information, see Super for employers or phone 13 28 64.
It is important to determine whether you are carrying on a business or pursuing a hobby, sport or recreational activity that does not produce income.
In general, you are considered to carry on a business if the activity:
- has started
- has a significant commercial purpose or character
- has a purpose of profit as well as a prospect of profit
- is carried out in a manner that is characteristic of the industry
- is repeated, regular or continuous
- is planned, organised and carried on in a business-like manner
- is of a sufficient size, scale and permanency to generate a profit
- cannot be more accurately described as a hobby, recreation or sporting activity.
For more information, see:
- Are you in business?
- Taxation ruling TR 97/11 Income tax: am I carrying on a business of primary production?
Division 250 of the Income Tax Assessment Act 1997 applies to the leasing of assets and other similar arrangements to tax-preferred end users (such as tax-exempt entities, non-residents, and permanent establishments of Australian residents that carry on business in a foreign country).
If Division 250 applies to an arrangement, then capital allowance deductions will be denied for the asset and the arrangement will be treated as a deemed loan that is taxed as a financial arrangement on a compounding accruals basis. Division 250 applies to all relevant arrangements where the tax-preferred use of an asset started on or after 1 July 2007. However, Division 250 does not apply if the use occurs under a legally enforceable arrangement that was entered into before 1 July 2007.
Division 250 does not apply if you are a small business entity for the income year in which the arrangement period for the tax-preferred use of the asset starts, and you choose to deduct amounts under Subdivision 328-D (capital allowances for small business entities) for the asset for that income year. Division 250 does not apply to certain relatively short-term and lower-value arrangements.
Small businesses with an aggregated turnover of less than $10 million are called ‘small business entities’ and may qualify for a range of tax concessions. Prior to 2016–17 the turnover threshold was $2 million.
The threshold for the fringe benefits tax concessions increased to $10 million from 1 April 2017. The $10 million threshold applies to most of the small business concessions, except for:
- the small business income tax offset, which is available to businesses with an aggregated turnover of less than $5 million (claimed by individual partners)
- the capital gains tax (CGT) concessions, where the turnover threshold of $2 million continues to apply.
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, however businesses must review their eligibility each year.
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
- tax offset equivalent to 8% of the income tax payable on your net small business income (capped at $1,000)
- simplified depreciation rules
- simplified trading stock rules
- deducting certain prepaid business expenses immediately
- deducting certain business start-up expenses immediately
- accounting for GST on a cash basis
- annual apportionment of GST input tax credits
- paying GST by instalments
- fringe benefits tax car-parking exemption
- fringe benefits tax portable electronic device exemption
- pay as you go (PAYG) instalments based on gross domestic product adjusted notional tax
- small business restructure roll-over.
You are a small business entity if you are carrying on a business and have an aggregated turnover of less than $10 million.
Aggregated turnover is your annual turnover plus the annual turnovers of any entities that are connected with 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, see Aggregation or phone 13 28 66.
Calculating your turnover
Turnover includes all ordinary income earned in the ordinary course of business for 2017–18. The following are some examples of amounts included and not included in ordinary income of a business:
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 2017–18, your annual 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 2017–18. This includes winding up the business.
Satisfying the aggregated turnover threshold
Your business satisfies the $10 million aggregated turnover requirement if you meet one of the following:
- your aggregated turnover for 2016–17 was less than $10 million
- you estimate at the beginning of 2017–18 that your aggregated turnover for the year will be less than $10 million (and your aggregated turnover in 2015–16 or 2016–17 was less than $10 million), or
- your actual aggregated turnover, worked out at the end of 2017–18, was less than $10 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 2017–18.
For more information, see Small business entity concessions.
Continued use of the STS accounting method
Although the STS has now ceased, you may continue using the STS accounting method for 2017–18 if you:
- were an STS taxpayer continuously from the income year that started before 1 July 2005 (that is from 2004–05) and until the end of 2006–07
- used the STS accounting method from 2005–06 to 2016–17
- are a small business entity for 2017–18.
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 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.
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.
In addition, if another provision of the income tax law apportions or alters the assessability or deductibility of a particular type of ordinary income or general deduction, the timing rule in the specific provision overrides the received or paid rule under the STS accounting method, for example, double wool clips or prepayment of a business expense for a period greater than 12 months. Because of these specific provisions, you may need to make adjustments at Reconciliation items.
Ceasing use of the STS accounting method
If you have discontinued using the STS accounting method, or you are no longer a small business entity, then business income and expenses that have not been accounted for (because they have not been received or paid) will be accounted for in this year. You may need to make additional reconciliation adjustments at Reconciliation items.
There is also a special rule that applies if you are winding up a business this year that you previously carried on, and you were an STS taxpayer in the income year you ceased business.
For more information, see Small business entity concessions.