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Guide to Small Business Entity Concessions

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Last editedNov 20212 min read

It’s clear that running a small business is full of challenges. From finding your customer base to getting all the appropriate licenses, there are so many hurdles that can trip you up along the way. But there are also a number of survival tips that can help you on the road to success. One such example are small business concessions, which are a way for you to reduce your tax payments and thereby free up more money and boost your cash flow.

Put simply, you might qualify for these small business tax concessions if your annual turnover is below a certain threshold. In addition, there may be other conditions that you need to satisfy. Eligible businesses will be able to take advantage of a number of different concessions. Keep reading to find out more about how to qualify and what concessions are available.

What are concessions?

Before getting into the specifics, it’s a good idea to consider how to define concessions. These can actually cover a number of different things. In general, small business concessions refer to a reduction in taxes, which can be a great way to reduce the financial burden as you try to establish a new business.

In addition to this, concessions can also refer to allowances in the way that you run your business, as well as other things that can save you money in indirect ways. For example, one concession means that you do not need to account for Goods and Services Tax (GST) on a sale before you actually receive the payment for it.

Who is eligible for small business tax concessions?

As a general rule, small businesses whose aggregated turnover totals to less than $10 million are eligible for small business entity concessions. Prior to 2016, the threshold was much lower at $2 million.

There are some exceptions to this rule, however. For example, to qualify for the small business income tax offset, your business must have an aggregated turnover of less than $5 million. In addition, for the Capital Gains Tax (CGT) concessions, the old threshold of $2 million still applies.

If you are eligible for these small business entity concessions, then you can pick and choose them based on your needs. Be aware that eligibility is reviewed every year, so you may find that if your revenue increases you are no longer able to access the same concessions.

What different small business concessions are available?

There are a number of different concessions that are available, and you should consider these carefully to decide which ones are best suited to your business model. For a full list, you can go to the website of the Australian Taxation Office, which details each concession and the eligibility criteria. Some of the small business concessions are as follows:

  • 50% active reduction in CGT. If your company possessed an asset that was used to conduct your business, then you will only pay tax on 50% of the capital gain when you eventually sell this asset.

  • Rollover of CGT. If you sell one of your assets in order to buy a replacement, you can roll over the liability for CGT to this new asset, meaning that you don’t have to pay any CGT until you sell the replacement asset.

  • Simpler depreciation. One concession allows you to pool your assets together to simplify depreciation calculations. In addition, for any assets with a value lower than $1000, you can claim an immediate deduction.

  • Possibility to pay GST in instalments. Through small business concessions, you can arrange to pay your GST incrementally. The instalments will be calculated by the Australian Tax Office and may vary from quarter to quarter.

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