Small Business Entities

From 1st July, 2007, small businesses with an annual turnover less than $2 million are called Small Business Entities and may qualify for a range of tax concessions.

Eligible businesses can choose to use particular concessions which suit their business although they may have to satisfy additional conditions. They will have to check if they qualify for the concessions each tax year.

Some of these concessions were previously only available to businesses in the Simplified Tax System (STS). This system no longer operates, however all of its concessions remain available to eligible businesses.

Eligible businesses can choose to use the following concessions:

Capital Gain Tax (CGT) 15 year asset exemption
If you are aged 55 years or older, retiring and your business owned an asset for at least 15 years, you may not have to pay CGT when you sell the asset (subject to other conditions).

CGT 50 percent active asset reduction
If you have owned an asset to conduct your business (an ‘active asset’), you may only need to pay tax on 50% of the capital gain when you sell the asset (subject to other conditions).

CGT retirement exemption
There is a CGT exemption on the sale of business assets, up to a lifetime limit of $500,000 (subject to other conditions). If you are over 55, you can take this $500,000 tax free, but if you are under 55, money from the sale of the asset must be paid into a complying superannuation fund or Approved Deposit Fund or a Retirement Savings Account.

CGT roll-over
If you sell a small business asset and buy a replacement, you may be able to roll your CGT liability over to the value of an eligible replacement asset (subject to other conditions). This means that you won’t pay any CGT until you sell the replacement asset.

Simpler depreciation rules
Generally, you can pool your assets to make deprecation calculations easier and also claim an immediate deduction for most assets costing less than $1,000.

Simpler trading stock rules
You can choose whether or not to do a detailed end-of-year stock take if the value of your trading stock has not increased or decreased by more than $5,000 over the year.

Immediate deduction for certain prepaid business expenses
You can claim an immediate deduction for prepaid business expenses where the pre-payment component as at 30th June covers a period of 12 months or less that ends in the next income year.

Entrepreneurs’ Tax Offset (ETO)
The Entrepreneurs’ Tax Offset may reduce your tax payable on your business income by up to 25% where your business has turnover less than $75,000.

Accounting for goods and services tax (GST) on a cash basis
You are not required to account for the GST on a sale you make until you receive payment for the sale. Similarly, you are not able to claim any GST on applicable purchases until you have paid for these purchases.

Annual apportionment of GST input tax credits
If you purchase items that you use partly for private purposes, you can choose to claim GST credits for these items on your Activity Statements, and then make a single adjustment to account for the private use percentage at the end of the year.

Paying GST by instalments
You can pay GST by instalments worked out for you by the Tax Office. You can vary this amount each quarter if you chose.

Fringe Benefits Tax (FBT) car parking exemption
In some cases you may be exempt from FBT for employee car parking.

You may qualify for the above concessions if your business is a ‘Small Business Entity’ for the year in question. You will be a Small Business Entity if you carry on a business and your business turnover (aggregated turnover with any connected businesses) is less than $2 million.

Please contact us for specific advice on how the above may impact on your circumstances.