“Small Business Taxpayer”

The Small Business Entity Rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $10M in the previous year or likely to be less in the current year.  The new income threshold of $10M applied from 1st July 2016.  These businesses qualify as a “small business taxpayer” and are able to utilise simplified depreciation rules as follows:

  • A small business taxpayer can immediately write off the cost of new assets including motor vehicles costing up to $20,000. If the assets (including vehicles) costs more than $20,000, the asset can be placed in to the small business simplified depreciation pool, depreciated at 15% in the first income year  and 30% each income year thereafter.
  • Depreciation Rules – if the asset costs less than $1,000 it may be written off in full in the year in which it was acquired.
  • Depreciation – Motor Vehicle – you can choose to use the capital allowance provision to calculate the deduction for a motor vehicle costing $1,000 or more if you have started to use or installed ready for use for business purposes.

 Simplified Trading Stock Rules For Small Business Entities

If the taxpayer has a turnover of under $10M, the taxpayer is able to prepare its income tax return under the small business entity regime.  The taxpayer does not have to account for changes in trading stock or do a stocktake for tax purposes where the difference between the value of the original opening stock and a reasonable estimate of the closing stock is $5,000 or less.

Audit Review Period

The audit review period for Australian Taxation Office reviews for a small business entity taxpayer (turnover up to $10M) is two years (for other taxpayers it is four years), however special circumstances do exist to extend this period of time.

Prepaid Expenses

A small business entity taxpayer can claim an immediate deduction for certain prepaid business expenses that satisfy the twelve month rule (Item 10).

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