A brief summary of the more common concessions available to many small businesses.
Many business owners are not aware that there are a number of tax concessions available for small business entities (SBE’s) which aim to reduce tax compliance. These concessions apply to all classes of entities, as long as they meet the eligibility criteria.
Why is it important to me?
Tax concessions can be quite complex, so rest assured that as your accountants, we take into consideration all of the elements relating to SBE tax concessions to provide you with the best tax solution for your business.
However as a business owner or decision maker, it can be of benefit for you to understand the basic eligibility factors for tax concessions and the concessions available to legally minimise your tax, improve working capital, and effectively develop a strategy for the disposal and acquisition of business assets.
To be eligible for the SBE concessions a taxpayer must;
- Be carrying on a business; and
- Have annual turnover of less than $2 million
Should you meet these criteria there are a number of tax concessions available.
What are the tax concessions?
income tax concessions
The income tax concessions available (but not limited to) include;
Simplified depreciation rules:
Assets costing less than $6500 are immediately tax deductible.
Immediate deduction of up to $5000 for motor vehicles purchased costing more than $6500.
Most other assets can be pooled and depreciated at a rate of 15% for the first financial year and 30% for subsequent years.
Prepayment rules allowing the immediate tax deduction for prepaid expenses (providing the expense relates to a period of service no greater than 12months).
A 2 year amendment period restricting the ATO (and unfortunately the taxpayer) from amending an assessment beyond the 2 year limit.
Capital gains tax (cgt) concession
To receive small business entity CGT concessions, the taxpayer must satisfy some basic conditions. These conditions are governed by two main tests:
- SBE Test / Maximum Net Asset Value Test:
The businesses turnover does not exceed the $2 million threshold. Where it does, there is an alternate maximum net value asset test where the value of the net CGT assets of the taxpayer, entities connected with the taxpayer, and affiliates of the taxpayer must not exceed $6 million.
- Active Asset Test:
The asset disposed of giving rise to the capital gain must be an active asset (i.e. is used in the business carried on by the taxpayer, an affiliate or connected entity).
Once the basic conditions are satisfied, the concessions available include;
15 year exemption, which allows the total capital gain to be disregarded providing the taxpayer is aged 55 or older, retiring or permanently incapacitated, and the active assets have been owned for at least 15 years.
50% active asset reduction which allows the otherwise taxable capital gain to be discounted by 50% (this is additional to the 50% discount given for holding a CGT asset for greater than 12months which may be available to some taxpayers).
Retirement exemption, which allows the gain to be exempted up to a lifetime limit of $500,000. Where the taxpayer is under the age of 55 the capital gain must be rolled into a complying superannuation fund. Where the taxpayer is aged 55 or more you can chose whether or not to roll it into a superannuation fund.
- Replacement assets exemption, which allows a capital gain to be rolled over (i.e. deferred) if the taxpayer acquired a replacement active asset within the replacement asset period (generally 2 years after the CGT event).
goods & services tax
The GST concessions available include:
Accounting for GST on a cash basis (as opposed to an accrual basis)
Electing to pay GST by instalments on a quarterly basis
pay-as-you-go (PAyg) instalment concessions
The PAYG instalment concessions allow a taxpayer to elect to pay quarterly PAYG instalments as calculated by the ATO (as opposed to the taxpayer having to calculate PAYG instalments).
This is an overview of some of the tax concessions available to small businesses. As the area of SBE tax concessions can be quite complex please contact us for more detailed information to suit your specific needs.