Updated May 2023
As a general rule, businesses with an aggregated annual turnover of less than $10 million have access to several Small Business Tax Concessions. From 1 July 2021, the eligibility to access some of the Small Business Concessions expanded to include businesses with a turnover is $10 million or more, but less than $50 million.
Many of these concessions have been available for some time, so we thought it was a good idea to provide a summary of the key Small Business Concessions you may be eligible for.
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 aggregated annual turnover of less than $50 million can access the 25% tax rate (30% for other companies). To be eligible for the lower company tax rate of 25%, a company must be a base rate entity.
A company is a base rate entity if both of the following apply:
- They have a turnover less than the turnover threshold – which is $50 million for the 2022-23 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
The tax offset works to reduce the tax eligible taxpayer’s 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 Business entities have access to the temporary full expensing where businesses can claim an immediate deduction for each asset first used, or installed ready for use first held, from 7.30pm (AEDT) on 6 October 2020 through to 30 June 2023. There is no threshold to the cost of the asset.
Eligibility criteria apply for the following:
- New or second-hand assets (if your aggregated turnover is less than $50 million) first held from 7.30pm (AEDT) on 6 October 2020 through to 30 June 2023
- Improvements incurred from 7.30pm (AEDT) on 6 October 2020 through to 30 June 2023 to:
- Eligible assets;
- Existing assets that would be eligible assets except that they are held before 7.30pm (AEDT) on 6 October 2020.
- Eligible assets of small entities using the simplified depreciation rules and the balance of their small business pool
Small business entities that use the simplified depreciation rules cannot 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 lodgement in your income tax return.
Refer to 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
Taxpayers operating a small business with an aggregated turnover of less than $10 million can change their legal structure without incurring any income tax liability when active assets are transferred from one entity to another from 1 July 2016.
To be eligible, the transfer must not result in a change to the ultimate economic ownership and rollover applies to active assets that are capital gains tax (CGT) assets, trading stock, revenue assets, or depreciating assets to the new entity.
Taxpayers may still need to consider potential implications related to stamp duty or Goods and Services Tax (GST) prior to commencing a restructure.
Simplified Trading Stock Rules
This concession is available to small businesses with an aggregated turnover between $10 million and $50 million (from 1 July 2021). It allows you to estimate the value of your trading stock at the end of the financial year and determine whether you need to conduct a formal stocktake or account for the changes in your trading stock value based on the estimated change in the value of that trading stock.
This simplified approach is available where there is a difference of $5,000 or less between:
- 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.
In order to apply the simplified trading stock rules your estimate must be reasonable. The ATO considers estimates to be reasonable where:
- you maintain a constant level of stock each year and have a reasonable idea of the value of your stock on hand; and
- 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 will need to conduct a stocktake and account for the changes in the value of your stock in line with the general trading stock rules.
Simpler BAS and Accounting on a cash basis
Simpler BAS is the default BAS reporting method if your GST turnover is less than $10 million. This means you are not required to complete the GST calculation worksheet and can leave these sections blank on the BAS.
The GST information you must report on your activity statement includes:
- G1 Total sales
- 1A GST on sales
- 1B GST on purchases
You can also choose to report your GST on a cash basis to account for GST on sales and purchases which relate to the activity period.
Immediate deductions for prepaid expenses
Small business entities with an aggregated annual turnover of less than $50 million may be able to claim an immediate deduction for prepaid expenses where the payment covers a period of 12 months or less that ends in the next income year.
If the prepayment does not meet the 12-month rule, the deduction cannot be claimed immediately but will need to be apportioned over the relevant period to which the expense relates.
PAYG Instalments Concession
Small business entities have access to pay your pay as you go (PAYG) installments using the amount as calculated but the ATO. The ATO calculates the installment amount by:
- using information from your most recent tax return; and
- adjustment for any likely growth in your business and investment income.
How we can support you
At Davidsons, we work with our clients to assess their eligibility and provide proactive advice on what concessions are most beneficial to their business. Our team specialises in the use and application of Small Business Concessions and can provide you with expert advice.
For more information on the small business concessions, or to make an appointment with one of our tax and business service specialists, please contact our office on (03) 5221 6399 or at email@example.com.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.