The definition of a SBE has not changed and you must first determine whether you or your business qualifies as a SBE. A SBE is defined as an individual or entity which is carrying on a business and the business meets particular turnover thresholds for the current and prior income years.
Providing you carry on a business and have an aggregated turnover of less than $10m the SBE concessions available include the following:
- Reduced company tax rate of 27.5% in 2016/17 as opposed to the standard company tax rate of 30%.
- Asset restructure rollover: this is available to a SBE taxpayer and connected entities and provides deferred income tax consequences for the restructure of business active assets for genuine business purposes.
- Simplified depreciation rules: SBE taxpayers can choose an immediate write off for assets costing less than $20,000 and acquired before 1 July 2018.
- Prepayment rules: SBE taxpayers can claim an immediate deduction for prepayments that have an eligible services period of 12 months or less and the period ends before the end of the next income year. Non-SBE’s must apportion these expenses over the shorter of the eligible services period and 10 years.
- Simplified trading stock rules: a SBE can estimate their closing stock balance without conducting an additional stocktake at the end of the financial year (provided the movement in trading stock can be reasonably estimated as $5,000 or less). Currently those businesses who do not qualify as a SBE must conduct a stocktake at the end of the financial year to determine their closing stock balance for tax purposes.
- GST/BAS concessions: the SBE taxpayer can elect to account for GST on a cash basis and pay GST instalments as calculated by the ATO instead of submitting a BAS.
- Immediate deduction of specified eligible business start-up costs rather than having to write these costs off over a 5-year period.
- FBT concessions: e.g. an SBE employer can provide more than one identical work-related items, such as a work-related phone and laptop, from 1 April 2017.
- PAYG instalment concession: SBE taxpayers can choose to receive a quarterly pre-printed GDP-adjusted instalment to be paid rather than a calculated PAYG instalment.
Excluded from concessions
The following are excluded from the change in the turnover threshold changes:
- The Small Business CGT concessions are unchanged. They are available to only those small businesses with an aggregated turnover of less than $2 million, or a net market value of assets of less than $6 million.
- The unincorporated small business tax offset will remain at a maximum of $1,000.
From the 2016-2017 year the imputation system will operate based on a company’s corporate tax rate for a particular income year worked out having regard to its aggregated turnover for the previous income year. This could give rise to potentially higher top-up tax payments by dividend recipients as well as wastage of franking credits.