Small Business Tax & Accounting
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TAS-Australia can help you navigate the accounting and tax responsibilities that
come with running a business. We can advise you on the best structure to set up your business. We can also assist you in the setting up of a Company, Partnership,
Trust or Self Managed Super Fund.
Our professionals are experienced and qualified accountants dedicated to providing timely and proactive solutions for all your accounting, taxation and business needs. In fact our experience covers the whole realm of tax and associated accounting and business advisory, from compliance to growth and tax-effective strategies.
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Meaning of Small Business Entity
An entity is a small business entity if it:
• carries on a business
• satisfies the $2 million aggregated turnover test.
Broadly, an entity can satisfy the $2 million aggregated turnover test if the total annual turnover for the entity, its affiliates and entities connected with it is not more than $2 million.
When an entity is determined to be a small business entity, it will be able to utilise these tax concessions provided it also satisfies any additional criteria that may separately apply to each concession.
Outline of Concessions
1. Small business Capital Gains Tax (CGT) concessions
The maximum net asset value threshold for accessing the small business CGT concessions is $6 million. However, entities that satisfy the $2 million aggregated turnover test can access the small business CGT concessions (even where they cannot satisfy the $6 million net asset value test) where the following ‘basic conditions’ have been satisfied:
The following small business CGT concessions are available to eligible small businesses:
If you are considering selling your business and are wondering how you may benefit from accessing these concessions, please do not hesitate to contact us.
15 year exemption
In addition to the basic conditions for eligibility for the small business concessions being met, eligibility for the small business 15-year exemption requires that the entity claiming the concession must continuously own the asset for 15 years before it is sold. Furthermore, the relevant individual (which may be the individual ‘behind’ the entity in some cases), must be either over 55 years of age or be permanently incapacitated at the time of the CGT event. If the exemption is being claimed because the individual is over 55 year the CGT event must have occurred in connection with their retirement. Additional conditions will apply if the entity claiming the exemption is company or a trust. Where all these conditions are satisfied, the capital gain will be fully exempt from CGT, and does not need to be reduced by any capital losses.
Active assets 50% reduction
The small business 50% active asset reduction is available if the basic conditions for small business CGT concessions are satisfied. The concession allows the remaining capital gain (after applying capital losses and the standard 50% CGT discount for individuals or trusts) to be further reduced by 50%. Access to this concession effectively results in a 75% discount on the gross capital gain.
Small business retirement exemption
If the basic conditions are met, an entity may be able to choose an exemption of up to a maximum capital gain of $4,000,000 subject to the ownership structure of the small business entity making the gain. If such a gain is chosen to be disregarded, the disregarded gain amount (CGT exempt amount) must be distributed to the relevant CGT concession stakeholders of the entity. Importantly, if the CGT concession stakeholder (to which the gain is distributed) is under the age of 55 the amount must be paid into their complying superannuation fund or a retirement savings account. The CGT exempt amount cannot exceed a $500,000 lifetime limit per individual.
A company or trust selling an active asset may also choose to disregard an amount under the small business retirement exemption subject to various additional conditions being met.
Small business rollover
Where the basic conditions are met a small business entity can also choose to indefinitely defer a capital gain if it applies the small business roll-over. The entity also needs to either acquire suitable replacement active asset or improve an existing active asset within two years of the sale of the active asset. If this does not occur, a capital gain will arise to the extent that the deferred capital gain is not applied to acquire replacement or improved active asset(s) within two years from the date of sale of the active asset.
Concession for superannuation contributions
Superannuation contributions made to a superannuation fund for or by an individual arising from small business CGT concessions may be covered by a CGT cap rather than the annual non-concessional contributions cap. This concession applies where the 15 year or the retirement exemption applies to disregard a capital gain and a payment into superannuation is required and/or permitted. The CGT cap amount for the 2014/15 income year is $1,355,000 and is subject to a lifetime limit for each individual taxpayer.
2. Simplified depreciation rules
Small business entities have an option to deduct amounts for most of their depreciating assets under the “small business depreciation” regime. In general, small businesses can:
3. Prepaid Expenses
Small businesses can claim an immediate deduction for prepaid expenses for a service period of 12 months or less, which ends in the following income year. For example, prepayments of subscriptions to professional associations, rent or insurance payments are immediately deductible.
4. Simplified trading stock rules
Provided that the difference between the value of the opening trading stock and the estimated closing stock of small business is $5,000 or less, a small business entity does not have to account for changes in value of the trading stock. Otherwise, the entity must conduct a stock take and account for changes in value at the end of the income year.
5. Review of assessments
A small business entity has a two-year tax assessment review period. This review period can be extended in circumstances where fraud or evasion of tax is involved.
6. Pay As You Go (PAYG) installment amounts
Small businesses will be eligible to calculate PAYG installments based on the gross domestic product (GDP) adjusted notional tax method for cost and time saving purposes.
7. Goods and Service Tax (GST) cash accounting
A small business entity can opt to account for GST either on a cash basis or accrual basis.
8. GST and annual private apportionment
When claiming GST input tax credits for business assets, a small business does not have to estimate how much it intends to use the assets for private purposes. Instead, it is required to make a single adjustment after the end of the income year to account for private use.
9. GST instalments
Small businesses can choose to pay GST by installments and lodge a GST return annually. Depending on the nature of the business, the frequency of the installment payments may be four quarterly installments in an income year.
10. Fringe benefits tax (FBT)
Small business entities can access the FBT car parking exemptions provided that the car parking is not provided in a commercial car park.
Given the above concessions, there may be substantial benefits potentially available to your business if you are eligible to be a small business entity, and we would be pleased to meet with you to identify any of the benefits potentially available.
If you would like to discuss how the small business tax concessions may affect your business or have any further queries, please do not hesitate to contact TAS.
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