Updated June 2024

If you’re operating a small business with an aggregated annual turnover of less than $10 million, you may be eligible for several small business tax concessions. From 1 July 2021, some of these concessions have been expanded to include businesses with a turnover of $10 million or more, but less than $50 million.

Many of these concessions have been around for a while, so we thought it would be helpful to provide a summary of the key small business concessions you might be able to access.

What small business tax concessions am I eligible for?

Lower company tax rate

From the 2022 financial year onwards, companies that operate a business and have an aggregated annual turnover of less than $50 million can access the 25% tax rate (compared to 30% for other companies). To be eligible, a company must be a base rate entity, which means:

  • They have a turnover less than $50 million for the 2023-24 income year, and
  • 80% or less of their assessable income is base rate entity passive income (such as interest, dividends, rent, royalties and net capital gain).

Small business income tax offset

This tax offset can reduce the tax you pay by up to $1,000 each year. The offset is claimed in your income tax return (ITR), and the ATO will calculate the offset based on the small business income amounts reported in your tax return, up to the maximum offset amount of $1,000.

The small business income tax offset applies to taxpayers that are either:

  • a small business sole trader; or
  • have a share of net small business income from a partnership or trust, and the aggregated turnover is less than $5 million.

For a worked example of how the tax offset works, refer to our article ‘How do you calculate tax as a sole trader?‘ (noting the offset is not limited to just sole traders).

Depreciation and write-off rules

Small businesses, with aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.

Small businesses can immediately write off the full cost of each asset that is valued at less than $20,000. This means they can claim multiple assets as long as each individual asset costs less than the $20,000 threshold.

If an asset is valued at $20,000 or above, it can still be added to the small business simplified depreciation pool. In this pool, the asset will be depreciated at a rate of 15% in the first income year and then at 30% for each subsequent income year. Moreover, if the total balance of the pool is below $20,000 at the end of the 2023–24 income year, small businesses will have the option to write off the entire remaining pool balance.

It’s important to note that small business entities that use the simplified depreciation rules can’t opt out of temporary full expensing. To opt out of the temporary full expensing for an income year, you must also opt out of the simplified depreciation rules and can advise the ATO via the lodgment in your income tax return.  

Please see our article ‘From Instant Asset Write Off to Full Expensing‘ for more information. 

Deductions for professional expenses for startup small businesses

From 1 July 2015, eligible new small businesses such as companies, trusts, or partnerships can immediately deduct a range of professional fees incurred with starting the new business.  The range of deductible start-up costs includes professional, legal and accounting advice, and government fees and charges. The immediate deduction is limited to expenditure which relates to the purpose to be carried on as a business in the income year for which it occurs. 

Businesses that don’t meet the small business criteria may have the ability to claim these expenses over a five-year period. 

Small business restructure rollover

If you’re operating a small business with an aggregated turnover of less than $10 million, you can change your legal structure without incurring an income tax liability when transferring active assets from one entity to another. This concession has been available since 1 July 2016.

To qualify for this rollover, the transfer must not result in a change to the ultimate economic ownership. The rollover applies to active assets that are capital gains tax (CGT) assets, trading stock, revenue assets, or depreciating assets being transferred to the new entity.

However, it’s important to note that even if you’re eligible for this rollover, you may still need to consider potential stamp duty or goods and services tax (GST) implications before proceeding with a restructure.

Simplified trading stock rules

From 1 July 2021, small businesses with an aggregated turnover between $10 million and $50 million can access the simplified trading stock rules. This concession allows you to estimate the value of your trading stock at the end of the financial year and determine whether a formal stock take is necessary or if you can account for changes in your trading stock value based on a estimates.

You can use this simplified approach if the difference between the following is $5,000 or less:

  • The value of your stock at the start of the income year; and
  • A reasonable estimate of the value of your stock at the end of the year.

To apply the simplified trading stock rules, your estimate must be reasonable. The ATO considers an estimate reasonable if:

  • You maintain a consistent level of stock each year and have a reasonable understanding of the value of your stock on hand; or
  • Your stock levels fluctuate, but you can make an estimate based on your records of the stock you have purchased.

If you choose not to use an estimate, you must conduct a stock take and account for the changes in the value of your stock according to the general trading stock rules

Simpler BAS and accounting on a cash basis

If your GST turnover is less than $10 million, the default BAS reporting method is Simpler BAS. Under this method, you’re not required to complete the GST calculation worksheet and you can leave these sections blank on the BAS.

On your activity statement, you must report the following GST information:

  • G1 total sales
  • 1A GST on sales
  • 1B GST on purchases.

You also have the option to report your GST on a cash basis, which allows you to account for GST on sales and purchases related to the activity period.

Immediate deductions for prepaid expenses

Small business entities with an aggregated annual turnover of less than $50 million may be eligible to claim an immediate deduction for prepaid expenses when the payment covers a period of 12 months or less that ends in the next income year.

If the prepayment doesn’t meet the 12-month rule, you can’t claim the deduction immediately. Instead, you’ll need to apportion the deduction over the relevant period to which the expense relates. 

PAYG instalments concession

Small business entities can pay their pay as you go (PAYG) instalments using the amount calculated by the ATO. The ATO calculates the instalment amount by:

  • Using information from your most recent tax return; and
  • Adjusting for any likely growth in your business and investment income.

How we can support you

Chat with our experienced accounting team  

At Davidsons, we work closely with our clients to assess their eligibility and provide proactive advice on the most beneficial concessions for their business. Our team specialises in the application of small business concessions and can provide expert guidance.

For more information on small business concessions or to make an appointment with one of our tax and business service specialists, please contact us by:

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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals. 

This article was written by Director Kylie McEwan and updated by Senior Accountant Rebecca Armstrong.