Criteria for determining Small Business Entity and its significant favourable treatment in Taxation

Running head: TAXATION
Taxation
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Author Note

TAXATION1
 Criteria for determining SBE (Small Business Entity)
Every firm that has been claiming to be an SBE needs to satisfy certain criteria for the
purpose of rendered the status of the same. These are as follows:
a) The firm needs to be a small business as per the definition provided by ATO.
b) The firm needs to have a personal net worth of $1.32 million.
c) Control of the whole firm needs in its own control and it has the independence of
acting on its own in all its endeavours.
d) The burden is upon the business entity to prove that it has the eligibility to be
rendered as the small business entity.
As per the criteria set by the ATO, the for the purpose of being rendered as an SBE for
availing the concessions for the same, the first thing that is required to be done is to determine
whether it has the eligibility to be rendered as an SBE by satisfying the following points, these
are,
a) The entity is required to be a sole trader, a company or a trust,
b) It needs to be indulged into the task of operating business activity for the whole of or
a certain portion of the year of income.
c) It has been accounting for a turnover below the threshold of $10 million.
Therefore any business entity that has satisfied the requirements that has been set by the
SBA standards as well as the standards set by the ATO would be considered as an SBE
(www.ato.gov.au, 2019).

TAXATION2
 Reason for the significant favourable treatment given to SBE
The reasons for which the small business entities have been given such relaxations and
concessions in relation to taxation can be discussed as follows:
a) The small business entities have suffering from attaining the required economies
of scale as compared to large concerns. The large business entities are having the
economic benefit over the small business entities as they have been owning a
major part of the resources. The resources are more owing to the ratio of the
number of such entities that have been operating in the Australian economy.
Moreover, the small business entities are numerous in count than that of the large
business entities but the resources owned by the small business entities are
negligible as compared to the large corporations.
b) This form of organisations are playing an important role in the economy of
Australia which demands it to prosper. The number of small business entities
being more in number than that of the large corporations has been accounting for
the most of the maximum employment opportunities in the country.
c) These concessions are necessary for providing a platform for these entities to deal
with the tax complications as owing to their economical disadvantage over the
large entities, the small entities might face utmost difficulty while dealing with
the same rate of tax as that of the large corporations.
d) The economical inferiority of the SBE would have the possibility of impacting the
economy of the in a drastic manner as it would have been create an issue of
umemployment. This is because the majority of the employed section of the
society has been involved with these business entities.

TAXATION3
The government has been providing this treatment to the small business entities
because of the fact that it has been holding a sizeable part of the economy, which
has been estimated for approximately $1.5 trillion as against the 2 million. The
small business entities being the has been forming 97% of the total number of
business entities operating in Australia (www.ato.gov.au, 2019).
 Importance of the Definition of the SBE
The small business entities has been accounting for the 90% of the business operating in
Australia. This has been playing a significant role in the economy of Australia. There has been
several concessions that has been provided to these business entities by the government with
respect to revenue and taxation. This has been provided to these entities to provide them with an
advantage with respect to the competition that has been posed towards them by the large entities.
However, for the purpose of availing the concession, the establishment of the fact that whether
the entity can be categorized as the small business entity is required. This has brought forward
the significance of the proper identification of the SBE as the failure to establish proper
identification of the same would result in the concession of other entities to avail the concession
by declaring themselves SBE. This would make the government to lose revenue and the other
companies has the probability of taking undue advantage of the system of revenue to serves their
purpose and avail benefits under the concession, which has not been made for them. This would
on one hand make the government to loss revenue as the availing of the concession by every
entity would make heavy revenue losses for the tax authorities inevitable, and on the other hand
it would defeat the purpose of the enactment of such regulations to provide concessions for small
business entities. This is because if the large corporations are also provided with the same