bO2 2022 – Ch 12 – Small Business Entities (SBE)

James Murphy

Search this document:
← 2021 – 2022 Manual


For some time now, a small business has been able to access a number of existing concessions covering the following areas of tax:

  • Capital Gains Tax (CGT)
  • Income Tax
  • Goods And Services Tax (GST)
  • Pay As You Go Instalments (PAYGI); And
  • Fringe Benefits Tax (FBT).

Until 30 June 2016, a business with a turnover of less than $2 million was eligible for this range of concessions. On 1 July 2016, the SBE threshold was increased to $10 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold
  • the capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

Also, note the extension of some concessions from 1 July 2021 to companies with a turnover of less than $50 million at the end of this chapter.

Eligible businesses can pick and choose the concessions that best suit their needs, helping them to reduce red tape and compliance costs.

Small businesses may be eligible for the following concessions:

  • The choice to account for GST on a cash basis
  • The choice to pay GST by instalments
  • Annual apportionment of GST input tax credits
  • Simplified trading stock rules
  • Simpler depreciation rules
  • CGT 15-year asset exemption: (subject to turnover / assets tests)
  • CGT 50% active asset reduction: (subject to turnover / assets tests)
  • CGT retirement exemption: (subject to turnover / assets tests)
  • CGT roll-over provisions: (subject to turnover / assets tests)
  • PAYG instalments based on GDP – adjusted notional tax
  • The two-year period for amending assessments: (exceptions may apply)
  • Immediate deductions for certain prepaid business expenses, and
  • FBT car parking exemption 


  • The SBE applies to all business structures or entities.
  • The entity must be carrying on a business in that year of income.
  • The entity must have an aggregated SBE turnover (see below) for itself and any affiliate of less than $2 million.


An entity’s aggregated turnover for an income year is the sum of its own “annual turnover” and the turnovers of other relevant entities; that is:

  • Its affiliated entities; and
  • Its connected entities.

An entity is connected with another if:

  • Either entity controls the other entity in a particular way.
  • The same third-party controls both entities in a particular way.
  • If your aggregated turnover for the previous income year was less than $10 million, you are a SBE for the current year.
  • If your estimated aggregated turnover for the current year is less than $10 million, you will be a SBE for the current year. If your aggregated turnover was less than $10 million for one of the last two income years, you can only use this method.
  • If your actual aggregated turnover at the end of the current year is less than $10 million, you are a SBE for the current year. 


These provisions are similar to those that apply to the small business concessions for CGT.  “Effective control” applies when there is a legal or beneficial right to at least 40 per cent of income or capital or at least 40 per cent of the voting power.  If between 40 per cent and 50 per cent, taxpayers will not be grouped if they can demonstrate to the ATO’s satisfaction that a third-party exercises effective control.


An immediate write off for depreciating assets costing less than $6,500 from 1 July 2012 (formerly $1,000) was available to SBE taxpayers.

The Coalition government removed this concession for assets purchased from 1 January 2014, and the $1,000 limit again applied from this date.

The 2015 Federal Budget announced an immediate write-off of up to $20,000 for assets acquired after 7.30 pm 12 May 2015 and prior to 30 June 2017. The 2017 & 2018 Federal Budget extended this date to 30 June 2019.

Significant events relating to this concession occurred in the year ended 30 June 2019. Firstly the $20,000 threshold was extended to $25,000 on 19 January 2019 for purchases after that date, then on 2 April 2019, the threshold increased to $30,000 as part of the Federal Budget. The cut-off date was also extended to 30 June 2020.

Significantly the concession was also offered to “base rate entities”, companies with a turnover of less than $50 million.

Most other depreciating assets are pooled in the general small business pool, irrespective of their effective life.  Newly acquired assets are depreciated at 15% in the first year, regardless of the date on which they were acquired.  In subsequent years, the assets are depreciated at 30% on the diminishing value basis.

The 2017 Federal Budget stipulates an immediate write off of the small business pool (including existing pools) if the balance is less than the equivalent instant asset write-off amount at the end of a financial year.

For assets used only partly for business purposes, only the business proportion is attributed to the pool.  When an asset is sold, the entire sales proceeds are credited to the relevant pool, reducing the total amount on which depreciation is calculated.  When using this method, no balancing adjustments are required.

Also note our comments on the full expensing regime (instant asset write off) also in Chapter 5.


From 12 March to 31 December 2020, the instant asset write-off: 

  • Threshold will increase to $150,000 per asset (up from $30,000).
  • Eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

This concession effectively continues until 30.6.2023 under the full expensing regime.


SBE taxpayers and individual taxpayers incurring deductible non-business expenditure (e.g., rental property expenses and work-related expenses) can apply the 13-month prepayment rule.

Such taxpayers are eligible to claim prepaid expenses, provided the period covered by the prepayment does not exceed 12 months and concludes before the end of the following financial year.

Other than individuals who incur deductible non-business expenses, all other business taxpayers are required to apportion such prepaid expenses over the service period to which the prepayment relates. 


Small business entities can choose to account for their GST using the cash accounting method.  It means you can account for GST when income is received and when expenses are paid.  The advantage of the cash accounting method is that the money flowing through the business is better aligned with your activity statement liabilities. 


If you are an SBE taxpayer, you only need to conduct a stocktake and account for changes in the value of your trading stock if there is a difference of more than $5,000 between:

  • The value of your stock on hand at the start of the income year; and
  • A reasonable estimate of the value of your stock on hand at the end of the income year.

While in the SBE, you can, if you wish, still conduct a stocktake and account for the change in the value of trading stock in any income year.

If the value of your trading stock varies by $5,000 or less and you choose not to do a stocktake and account for the change in the value of trading stock, the value of your closing stock is deemed to be the same value as your opening stock.

If you conduct a stocktake for tax purposes, all trading stock on hand at the start and end of the income year is considered in working out your taxable income.

To work out the value of trading stock for tax purposes at the end of the income year, generally, a stocktake is required.  This involves working out the physical quantities of stock on hand and assigning a value to each item of stock.  Each item of stock is valued at either cost, market selling value or the replacement value.

The sum of the total number of items of trading stock on hand multiplied by the value of each item produces the total value of the trading stock on hand.  When using the simplified trading stock rules, the process of making a reasonable estimate of your closing stock may involve an estimate of both the quantity of stock on hand and the value of each item of stock.

The special valuation rules for trading stock can be used in making your reasonable estimate.  For example, the specific rules for the cost of natural increase of livestock and rules in relation to obsolete stock may apply.

You may also take into account tax rulings on the valuation of trading stock for some industries.


Tax cuts for both incorporated and unincorporated small business entities from the 2015-16 income year were confirmed, providing much needed cash flow relief to stimulate business activity and growth.

From 1 July 2016, the company tax rate fell from 30% to 27.5% for small business companies.

For the 2020/21 year, the company tax rate reduces to 26% and from 1.7.2021 to 25%.

Unincorporated small businesses will benefit from a 13% (2020/21) then 16% (2021/22) discount on income tax payable on income from business activity.  The discount is capped at $1,000 per individual for each income year and is a tax offset.

The rate reduction does not affect the Company’s franking ability as the current maximum franking credit rate for a distribution remains unchanged at 30% for all companies that are not SBE for 30 June 2016. SBE franked distributions will be at their respective tax rate for the 2021/22 year onwards at 25%.

The package also includes the following measures available since 1 July 2015:

  • Easier for small businesses to crowd source equity funding by providing necessary funding to the Australian Securities and Investment Commission (ASIC) to simplify reporting and disclosure requirements.
  • Investment into software allowing businesses to deal with Government agencies such as ASIC and the ATO more efficiently.
  • Immediate deduction for a range of professional expenses associated with starting a new business, such as professional, legal, and accounting advice, instead of spreading the deduction over five years.

Since 1 July 2015, tax relief has been available for small businesses that change their legal structure by way of a capital gains tax rollover.


As mentioned above, since 1 July 2016, all businesses with an annual turnover of less than $10 million will have access to:

  • Simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $30,000 until 11 March 2020.
  • Temporary increase of $30,000 depreciation cap from 12 March to 31 December 2020 to $150,000. Also, note the full expensing concession which is not subject to the $150,000 limit.
  • Simplified trading stock rules, giving them the option to avoid an end of year stocktake if the value of their stock has changed by less than $5,000.
  • A simplified method of paying PAYG instalments calculated by the ATO removing the risk of under or overestimating PAYG instalments and the resulting penalties that may be applied.
  • The option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.
  • Other tax concessions currently available to small businesses, such as fringe benefits tax (FBT) exemptions (from 1 April 2017 to align with the FBT year); and
  • A trial of simpler business activity statements (BAS), reducing GST compliance costs, with a full roll-out from 1 July 2017.

These threshold changes will not affect eligibility for the small business capital gains tax concessions, which will remain available for businesses with an annual turnover of less than $2 million or satisfy the maximum net asset value test.

Also, refer to Chapter 1 for increases in the Unincorporated Small Business Tax Discount and proposed reductions in company tax.


The Federal Government’s jobs plan is firing into the new financial year with a number of measures coming into force to help protect jobs and connect Australians with jobs and measures to support business in putting more Australians on the books.

The tax rate for eligible companies with an aggregated annual turnover below $50 million will decrease from 26 per cent to 25 per cent this financial year, and the turnover threshold for access to a range of small business tax concessions is rising from $10 million to $50 million from 1 July 2021.

The temporary loss carry-back regime will be extended by a further year. Eligible companies with an aggregated annual turnover of up to $5 billion will now also be able to carry-back tax losses from the 2022-23 income year, in addition to the 2019-20, 2020-21- and 2021-22-income years, to offset previously taxed profits as far back as the 2018-19 income year.

The ‘temporary full expensing’ regime for eligible businesses will also be extended by a further year. It will allow businesses with an aggregated annual turnover or total income of up to $5 billion to instantly write off the cost of eligible depreciating assets acquired from 7:30 pm AEDT on 6 October 2020 and first used or installed and ready for use by 30 June 2023.

Businesses who hire an eligible job seeker will now be able to receive up to $10,000 in wage subsidies, an increase from $6,500 for some wage subsidies. About 300,000 people may be eligible for the higher wage subsidy.

It will now also be easier to access foundation skills training for Australians with low language, literacy, numeracy, and digital literacy skills. The number of available places in the Skills for Education and Employment program has been uncapped, and eligibility has been extended to all job seekers, regardless of whether they are on income support, starting from today. Support is also being expanded for the Reading Writing Hotline, connecting more people with this valuable service.

From 1 July, more Australian parents will be able to access vital assistance to help them prepare for, or return to, work with a $24.7 million boost to the Morrison Government’s ParentsNext program, which is set to benefit women’s economic security particularly.

The successful Local Jobs Program is also being expanded by $213.5 million to cover all 51 Employment Regions in Australia, starting from 1.7.2021, doubling the number of Employment Facilitators, generating skills and training opportunities aligned to local employer and industry needs.

There will also be further regulatory relief for higher education and vocational education and training providers. Waivers of regulatory fees and charges will be extended from today until the end of 2021.

The Morrison Government’s Franchising reforms a force on 1.7.2021. Franchisees will benefit from increased cooling-off periods and greater certainty about the costs of running their businesses, with strengthened prohibitions on franchisors requiring significant capital expenditure or payment for legal costs. Franchisees will also be assisted by better-balanced termination procedures, improved disclosure of leasing and marketing fund arrangements, restrictions on certain contract variations and an improved ability for ex-franchisees to conduct future business.

  • The changes that come into force from 1.7.2021 back businesses through lower taxes and support Australian job seekers need to get them into that job. Whether they need to enhance their skills or simply need to be connected with work opportunities, measures are being delivered that will help achieve that.
  • These measures are in lockstep with existing programs including, JobTrainer and the Boosting Apprenticeships Commencements wage subsidy, which are protecting jobs, connecting people with jobs and skilling Australians for the jobs of tomorrow. All of it is focused on cementing Australia’s economic recovery through getting more Australians into work through our jobs plan.


If your business entity has a turnover of between $10 million and $50 million, this information is very important.

On 6 October 2020, as part of the 2020–21 Budget, the government announced an extension to certain small business concessions (which were previously available to small business entities with an aggregated turnover of $10 million) to those that have an aggregated turnover of less than $50 million per annum. The tax concessions  apply from 1 July 2020 or 1 July 2021, and the Fringe Benefits Tax (FBT) related exemptions will apply for eligible businesses regarding benefits provided on or after 1 April 2021.

This measure is now law.

From 1 July 2020, newly eligible businesses can immediately deduct:

  • certain start-up expenses – for example, professional expenses and legal and accounting advice
  • certain prepaid expenditure where the payment covers a period of 12 months or less that ends in the next income year.

From 1 July 2021, newly eligible businesses:

  • Can choose to use a simplified trading stock regime – where they may choose not to account for changes in the value of trading stock for an income year if the difference between the opening value and a reasonable estimate of stock on hand at the end of the year does not exceed $5,000.
  • Will have the option to have their PAYG instalments calculated for them by the ATO based on previously reported information.
  • Will have two years to amend an income tax assessment for income years that start on or after 1 July 2021. The current exceptions, including fraud or evasion, will continue to apply. Businesses can lodge an amendment application before the time limit, and the ATO may extend the time limit to give effect to the application.
  • Will be able to apply to defer settlement of excise duty to a monthly reporting cycle, instead of the current weekly reporting cycle in respect of eligible goods.
  • Will be able to apply to defer settlement of excise-equivalent customs duty from a weekly to monthly reporting cycle in respect to eligible goods.

In addition, from 1 July 2021, the Commissioner’s power to create a simplified accounting method determination for GST reporting purposes will be expanded to apply to businesses up to the $50 million annual aggregated turnover threshold.

From 1 April 2021, the following FBT exemptions will be extended to newly eligible businesses:

  • Car parking benefits provided to employees will be exempt from FBT if the parking is not provided in a commercial car park.
  • Even if the devices have substantially identical functions, multiple work-related portable electronic devices provided to employees will be exempt from FBT.