The content provided is of a general nature only and is not personal, financial or investment advice. Should you have questions relating to your specific circumstances you should see a suitably qualified professional adviser. Full Disclaimer






Legal documents online

A simple way to create and manage legal documents.
Personalised to suit your needs and emailed straight to your desktop in minutes.

• No set-up or licence fee
• No subscription fee

See how Cleardocs can help your business here.

Small business concessions

Attention: open in a new window. E-mailPrintPrintPrint

 

Members-only
Log-in at right to access more details pertaining to the following article, also value-added content from the Tax Summary book:
  • small business CGT concession details; significant individual test; conditions involving share or trust interests.
Also access The Taxpayer journal articles: 'The active asset test: What is rent?'; 'Entrepreneurs tax offset income test'; 'Maximum net asset value test', and more.
Don't have a membership? Join now, or view member benefits.

Simplified depreciation | GST | Help for capital gains tax

The small business sector has variously been described as the engine room of the economy as well as the biggest employer in the country – and it's not hard to see why. Recent research undertaken by the Council of Small Business Organisations of Australia (COSBOA) showed that small businesses were responsible for generating 5.1 million jobs, or around half of private sector employment. The Tax Office says that there are about three million small businesses in Australia, including primary production concerns, which represents around 96% of all business.

What is a small business?
The definitions of what constitutes a small business are not consistent however. The Australian Bureau of Statistics defines a small business as having less than 20 employees, while for the purposes of corporation law it is set at fewer than 50. From a tax perspective, the bar is set at having annual turnover of less than $2 million.

To stop businesses splitting activities so they can slip under the $2 million threshold and gain access to the various tax concessions, the law stipulates that turnover needs to be made from the 'aggregated' amounts, which basically means annual turnover (which is gross income, excluding GST) of every 'connected' or 'affiliated' business.

The one thing that everyone agrees on however is the central role that small business plays in the Australian economy. Just how important can be underlined by the fact that the government has seen fit to give the small business sector a break on a range of tax matters. Called small business tax concessions, there are several options that smaller enterprises can take up.

Simplified depreciation
What simplified depreciation means is that you can immediately write off any asset costing less than $1,000. It is also possible to pool some assets for depreciation and get a better rate.

Trading stock
Then, to make the business of business even easier, the tax law provides a set of simplified trading stock rules where, if your trading stock has not changed in value over the tax year, either up or down, by more than $5,000, you can choose not to do an end-of-year stocktake and merely include the same stock value at year-end as at the start of the year – that is, as if no change had occurred.

Pre-paid expenses
A small business can also get an immediate tax deduction for certain pre-paid business expenses. If a payment covers an expense that goes over into the next financial year (like insurance premiums, membership to an organisation like Taxpayers Australia, or rent) you can claim that deduction in the current income year.

GST
Taking care of your GST obligations can be made less of a headache as well, as eligible businesses are only required to account for GST once payment is received. On top of that, you can also pay GST in instalments, and the Tax Office will work out for you how much the instalments are. A small business can also, if using some items for private uses, choose to claim the full GST credits and make one single adjustment for the percentage of private use at the end of the tax year.

Another concession available to small business concerns pay-as-you-go tax instalments, where you can pay a quarterly instalment that is worked out based on your most recently assessed tax return. The income recorded there is adjusted to align with the latest increase in gross domestic product, and will save you the time and the effort in having to do the 'long form' calculations.

Help for capital gains tax
There are four CGT concessions that may be available to eliminate or reduce capital gains made by a small business (which are explained in further detail in the member section).
The 15 year exemption: Where a retiring taxpayer has an asset for at least 15 years.
The retirement exemption: Where capital proceeds are put towards retirement savings.
The 50% active asset reduction: The capital gain may be discounted by 50%, but there are specific rules.
The CGT rollover: A capital gain may be deferred if a replacement is acquired within two years.


For a free webinar presentation on the small business CGT concessions (and downloadable extensive notes), click here.

Reviewed May 8, 2012

Back to top