From 1 July 2016 Small Businesses generally are those with aggregated turnover of less than $10 million.
For individuals who are small business entities, the turnover ceiling for the purposes of the small business income tax offset is $5 million.
For small business corporate entities, see the turnover ceilings for income tax purposes here: company tax rates.
Up to 30 June 2016 the small business turnover limit for all purposes was $2 million. After 30 June 2016 this threshold ($2 million) has only been retained in respect to the small business CGT concessions (now specifically referred to as “CGT small business entities”).
Details of amending legislation are here: Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016
|Budget 2018||Budget 2017||Budget 2016|
|‘aggregated turnover’||Budget 2015||Turnover test|
|Depreciation||Asset writeoff Dec 2013||Other concessions|
|Instant asset write-off – current||Small Business Disputes||Simplified Transfer pricing|
Announced in the Budget 2019 – from 7:30 PM (AEDT) on 2 April 2019 (Budget night) until 30 June 2020 (subject to the passage of enabling legislation):
- The small business (turnover up to $10 million) write-off limit is increased from $25,000 to $30,000, applied on a per asset basis.
- Medium sized businesses (turnover from $10 million to $50 million) will now also have access to the instant asset write off in respect of assets acquired from Budget night to 30 June 2020.
- (As before) the small business pooling (simplified depreciation) rules and suspension of the lockout rules continue until 30 June 2020.
The Treasury Laws Amendment (Increasing and Extending the Instant Asset Write-Off) Bill 2019 has been approved by the parliament.
- The small business $20,000 instant asset write off (accelerated depreciation) is extended for a further 12 months until 30 June 2019 for businesses with aggregated annual turnover less than $10 million.
- The Government will ensure that unpaid present entitlements come within the scope of Division 7A of the Income Tax Assessment Act 1936 from 1 July 2019. This will apply where a related private company is made entitled to a share of trust income as a beneficiary but has not been paid that amount, known as an unpaid present entitlement.
- The taxable payments reporting systems are to be further expanded from 1 July 2019 to include:
- security providers and investigation services
- road freight transport
- computer system design and related services
- From 1 July 2019 businesses will no longer be able to claim deductions for wages payments where PAYG tax has not been withheld when it should have been. Likewise payments to contractors will not be deductible if the contractor does not provide an ABN and PAYG has not been withheld when it should have been.
- From 1 July 2019, high profile individuals will no longer be able to take advantage of lower tax rates by licencing their fame or image to another entity.
- R&D Companies with aggregated annual turnover below $20 million – from 1 July 2018, the refundable R&D offset will be a premium of 13.5% above a claimant’s company tax rate. Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years. Refundable R&D tax offsets from R&D expenditure on clinical trials will not count towards the cap.
The government has announced the extension of the small business $20,000 asset write-off provisions for a further 12 months until 30 June 2018. Legislation has now been passed.
Small businesses will be able to immediately deduct purchases of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2018. Only a few assets are not eligible (such as horticultural plants and in-house software).
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.
The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).
The 2016 Budget announcements included a number of measures for small business enterprises, which include:
- From 1 July 2016 Small Business Entity turnover ceiling lifted to $10 million with access to simplified trading stock and other small business concessions (see Budget 2016-17 fact sheets) – note that existing CGT concessions are not affected.
- From 1 July 2016 Small Business Entity company tax rate reduced to 27.5% progressing to 25% by the year 2026-27
- From 1 July 2016 the unincorporated small business tax discount (offset) to be increased to 8% for businesses with turnover up to $5 million (up from $2 million), and phased-in increases to 16% in tax year 2026-27
- From 1 July 2016 the instant write off for equipment purchases of up to $20,000 is extended to businesses with a turnover of less than $10 million.
- From 1 July 2017 BAS statements reporting to be simplified by the reduction of GST information required
“Aggregated turnover” is the result of adding together the annual turnovers of connected or related entities (s 328-115). Turnover generated between the aggregated entities is not counted.
Entities whose turnovers are required to be aggregated for this test include related group companies, section 318 associates (relatives, business partners and their spouses and children, associated companies and trusts), and affiliates – individuals or companies acting in “accordance with your directions or wishes, or in concert with you” (s 328-130).
A number of Small Businesses depreciation and other tax concessions were introduced or expanded through implementation of the 2015 Federal Budget.
2015 Budget legislative measures introduced and passed:
- Tax Laws Amendment (Small Business Measures No. 1) Bill 2015 (the small business company tax rate reduced to 28.5%) – passed
- Tax Laws Amendment (Small Business Measures No. 2) Bill 2015 ($20,000 instant asset write-off and primary producer capex deductions) – passed
- Tax Laws Amendment (Small Business Measures No. 3) Bill 2015 (5% tax offset, start-up deductions, FBT exemptions) – passed
- Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 (enable CGT rollover relief for small businesses on the transfer of capital gains tax assets, trading stock, revenue assets and depreciating assets as part of a restructure of their business) – passed
- From 1 July 2015 small business companies’ tax rate is reduced from the general rate of 30% to 28.5%. The maximum franking credit rate for a distribution is to remain unchanged at 30% for all companies.
- Also from 1 July 2015, individual small business operators (unincorporated) receive a 5% tax discount applied as a tax offset, up to a maximum $1,000 per individual per tax year.
- From 1 July 2015 small business startups obtain an immediate deduction for professional expenses that are associated with starting a new business, such as professional, legal and accounting advice or legal expenses to establish a company, trust or partnership. This extends the “black hole” expenditure deductions provided by sec 40-880 which enables a write-off over 5 years. See: black hole expenditure
- Accelerated depreciation – immediate deductions for capital expenditure – from 7:30pm (AEST) 12 May 2015 to 30 June 2017 small businesses can claim an immediate deduction for most depreciating assets acquired and installed ready for use and costing less than $20,000. A small business pool balance of less than $20,000 will also be fully deductible.
The the $20,000 limit excludes GST for GST registered entities, but would be inclusive of GST otherwise.
Any private use percentage must be excluded from the amount claimed, which is still subject to the $20,000 limit overall. For example a 50% business usage of an asset costing $39,999 does not qualify for the instant write-off concession.
In an associated measure until 30 June 2017, the ‘lock out’ rules will be suspended. These rules would otherwise prevent re-entry into the simplified depreciation regime for a period of five years after opting out.
See more: small business depreciation.
- From 12 May 2015 Primary producers to receive accelerated deductions for water facilities (100%), fodder storage (3 years) and fencing (100%)
- Extension of rollover relief: Small business owners are to be able to change the legal structure of their business without incurring a CGT liability from 1 July 2016. The final legislation extends the relief to the transfer of trading stock, revenue assets and depreciating assets. See the amending legislation here and the following guidance publications:
- The FBT small business exemption for portable electronic devices for work purposes is expanded to include more than one device performing a similar function from 1 April 2016. This exemption refers to devices such as laptop computers, tablets and phablets. Before the change, there is an exemption limit of one portable electronic device per FBT year performing a similar function. See further Fringe Benefits Tax exemptions
The aggregated turnover test ceiling of $2 million was replaced by a ceiling of $10 million from 1 July 2016.
The turnover test is determined year by year, and is met if:
- actual aggregated turnover was less than $10 million in the previous or current income years, or
- is estimated to be less than $10 million in the current year (provided it was less than $10 million for one of the two previous income years).
Small businesses have access to simplified depreciation rules.
- Immediate deduction for most depreciating “low cost assets” costing less than $1,000 or up to $1,000 of second element costs. (This value limit was increased to $20,000 from 12 May 2015 and has since been extended to 30 June 2019).
- higher cost assets can be added to a general pool and depreciated at the rate of 15% diminishing value in the first year and 30% thereafter
- If the value of a small business entity’s general small business pool is less than $1,000 ($20,000) at the end of the income year, the small business entity can claim a deduction for the entire value of the pool.
- Motor vehicles are subject to the same rules as other depreciating assets.
For the treatment of the sale of pooled assets – see ATO – balancing adjustments
Small business entities can claim a deduction up to $6,500 for the value of a depreciating asset in the income year the asset is first used or installed ready for use, or for a second element cost for installation or first use in a previous income year.
Depreciating assets that cost $6,500 or more are allocated to the general small business pool and with a deduction for the depreciation at a rate of 15 per cent in the year of allocation, and a rate of 30 per cent in subsequent income years.
If the value of a small business entity’s general small business pool is less than $6,500 at the end of the income year, the small business entity can claim a deduction for the entire value of the pool.
Special rules apply to motor vehicles. A small business entity can deduct the first $5,000 of the cost of a motor vehicle, plus 15 per cent of any remaining cost, in the income year that it is first used or installed ready for use. The motor vehicle is then added to the small business entity’s general small business pool, and depreciated as part of the pool at a rate of 30 per cent in subsequent income years.
From 1 January 2014 the write-off threshold reverts to $1,000 and the special rules for motor vehicles no longer apply. However (see above) the introduction of a $20,000 threshold from 12 May 2015 until 30 June 2017 (since extended to 30 June 2019).
Small businesses can access a range of other specific tax concessions. They include:
- Automatic penalty relief – once in 3 years for inadvertent errors. Available for small businesses and some other entities – a penalty will not be applied to tax returns and activity statements for an inadvertent error. The relief cannot be applied for; it will be automatically granted by the Tax Office no more than once every 3 years. See Changes to how we apply penalty relief
- Simplified trading stock valuation rules – a stocktake and accounting for the difference is not required if the year’s opening and closing stock difference is (or estimated to be) less than $5,000. More on stocktakes here.
- Prepayments – immediate deduction where the payment is for a period of service that is 12 months or less and ends in the next income year
- CGT concessions – there are four main CGT concessions available
- The Budget 2015 proposal to extend rollover relief to changes in the legal structure of a small business from 1 July 2016 is now law, see guidance document LCG 2016/3 and also more here.
- FBT – car parking fringe benefits
- GST – cash basis accounting, paying by pre-set (capable of variation) instalments with annual return, annual apportionment of private portions,
- PAYG – payment by pre-set (capable of variation) instalments
- Excise – monthly reporting and payment
- Fuel tax credits – simplified claims and record-keeping methods available to businesses claiming less than $10,000 in fuel tax credits each year – see more here
Small businesses are provided with dedicated resources to assist the resolution of disputes with the Tax Office. A Small Business Concierge Service is operational from 1 March 2019 with initial contact available through the Australian Small Business and Family Enterprise Ombudsman.
The measures provide small businesses with access to advice and legal support in disputes coming before the AAT. See also Tax Return Amendments.
Dispute Resolution Instruction Bulletin DR IB 2019/1 sets out internal Tax Office policy and principles on conducting litigation in the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT).
Smaller taxpayers (annual turnover of your Australian economic group is under $50 million, plus further eligibility requirements) may self-assess transactions for compliance with the transfer pricing rules.
The International Dealings Schedule accompanying tax returns is to be modified accordingly.
See also Practice Statement Law Administration PS LA 2014/3 which provides guidance to tax officers when considering whether to undertake compliance action against entities which have sought to apply simplified transfer pricing record-keeping in accordance PCG 2017/2.
Shorter amendment period: For individuals and small business entities, the time limit for reviewing an assessment is generally two years notice of assessment issue date. For other taxpayers, the period is four years.
Superannuation Clearing House (“SBSCH”): Small businesses which come under the Small Business Entity turnover threshold (currently $10 million) or with less than 20 employees can access the Superannuation Clearing House facility operated by the Tax Office. See Superannuation Clearing House
- Company Tax Rates
- ATO – Simplified depreciation
- ATO – Small Business Entity Concessions
- ATO – new legislation – accelerated depreciation
- ATO – Concessions at a glance
This page was last modified 2019-04-05