Small Businesses

From 1 July 2016 Small Businesses generally are those with aggregated turnover of less than $10 million, which have access to a range of concessionary tax arrangements. For some purposes (e.g. instant asset deduction eligibility) the turnover ceiling is higher – see notes below.

[update March 2020] Instant asset deduction claims have been boosted and expanded to medium sized businesses a number of times in recent financial years. Coronavirus response measures further expanded the limits and thresholds. There’s a full run-down here.

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) was only retained in respect to the small business CGT concessions (now specifically referred to as “CGT small business entities”).

On this page:
‘aggregated turnover’
Depreciation
Small Business Disputes
Turnover test
Other concessions
Simplified Transfer pricing

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 and subsquently. For a full run-down of the depreciation concessions, see here.

Small Business Income Tax Rate Reductions

Adjustments to the income tax rates were introduced for the benefit of small businesses starting from 1 July 2015.

From 1 July 2015 a schedule of small business companies’ tax rate reductions was created, initially to reduce the tax rate from 30% to 28.5% (2015-16) and then to 27.5% in the following years with a further reduction to 25% from 2021-22.

Also from 1 July 2015, individual small business operators (unincorporated) received a 5% tax discount applied as a tax offset, up to a maximum $1,000 per individual per tax year, with a turnover ceiling of $2 million. From 2016-17 this was increased to 8% and a turnover ceiling of $5 million. See full details here: Small Business Tax Discount (Offset)

  • 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 – see small business depreciation.
  • From 12 May 2015 Primary producers 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:
LCG 2016/3 – Small Business Restructure Roll over: genuine restructure of an ongoing business
LCG 2016/2 – Small Business Restructure Roll over: consequences of a roll over

  • The FBT small business exemption for portable electronic devices for work purposes includes more than one device performing a similar function from 1 April 2016.

This FBT exemption refers to devices such as laptop computers, tablets and phablets. Before the change, there was an exemption limit of one portable electronic device per FBT year performing a similar function. See further Fringe Benefits Tax exemptions

Eligibility: The small business turnover test

The aggregated turnover test ceiling of $2 million was replaced by a ceiling of $10 million from 1 July 2016 ( except for CGT small business concessions for which the ceiling remains at $2 million)

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 Business Depreciation

Small businesses have access to simplified depreciation rules, and an immediate deduction for assets up to a specified value.

The basic immediate deduction for most depreciating “low cost assets” is for those costing less than $1,000 (or up to $1,000 of second element costs).

This limit of $1,000 has been increased a number of times in recent years on a temporary basis.

The latest instant asset deduction limit is being monitored here: See Instant Asset Write-off expanded and extended.

  • assets costing more than the instant deduction limit 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 written down value of a small business entity’s general small business pool is less than $1,000 [or the temporarily increased amount] 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 – pooled asset disposals

Other small business concessions

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.
  • FBTcar 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

Dispute management

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).

Simplified Transfer Pricing Record Keeping

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.

For full details see Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record-keeping options.

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

Further information

 

 

This page was last modified 2020-06-16