2017 Tax Planning Checklist: Small Business Entity Rules

Small Business Taxpayer

The Small Business Entity Rules apply to a sole trader, partnership, company or trust which has a group turnover of up to $10M from 1 July 2016. These businesses qualify as a “small business taxpayer” and can elect to utilise simplified depreciation rules as follows:
  • A small business taxpayer can immediately write off the cost of assets, including motor vehicles, costing up to $20,000. Where the assets (including vehicles) cost more than $20,000, the asset can be placed into the small business simplified depreciation pool, depreciated at 15% in the first income year and 30% each income year thereafter. This incentive has been extended to 30 June 2018.
  • Depreciable assets costing more than $20,000 may be added to a small business pool and depreciated at 15% in the year of purchase – regardless of the date of purchase and 30% in subsequent years.
  • A small business income tax offset is available where you are carrying on a small business as a sole trader or have a share of net small business income from a partnership or trust. To be eligible for this offset, the aggregated turnover of the small business must be less than $5M. The offset will be 8% in the 2016/17 year but capped at $1,000 and is calculated on a proportional basis of your net small business income to your taxable income and your basic tax liability for the income year.  

Simplified Trading Stock Rules for Small Business Entities

Where the taxpayer has a turnover of under $10M, the taxpayer can prepare its income tax return under the small business entity regime. The taxpayer does not have to account for changes in trading stock or complete 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 is generally two years (for other taxpayers it is four years), however special circumstances do exist to extend this period.

Prepaid Expenses

A small business entity taxpayer can claim an immediate deduction for certain prepaid business expenses that satisfy the twelve-month rule (Deductions - Small Business Entity tax Payer).