Taxation Law: Detailed Examination of Small Business Concessions

This report provides an overview of taxation law, specifically focusing on small business concessions in Australia. It begins by highlighting the significant contribution of small businesses to the Australian economy and the importance of concessions like the Capital Gains Tax (CGT) relief. The report details various types of concessions, including 15-year exemptions, 50% reductions, retirement exemptions, and rollover exemptions, alongside the eligibility criteria such as the net asset value test and active asset tests. It explores the objectives of these concessions, which aim to simplify tax measures and reduce compliance costs. The report then outlines the history of tax measures for small businesses, including the introduction of simplified tax treatment packages. It also covers recent amendments, such as simplified depreciation methods, trading stock rules, and immediate deductions for prepaid expenses. The effectiveness of these methods is assessed, and recommendations are made, including potential adjustments to the net asset value test. In conclusion, the report underscores the widespread adoption of small business concessions, particularly CGT reliefs and the use of cash basis accounting for GST purposes, emphasizing the efforts to reduce compliance costs for small businesses. The report is a valuable resource for students seeking to understand the intricacies of small business taxation in Australia and is available on Desklib.

Taxation Law
SMALL BUSINESS CONCESSIONS:

Introduction
• Small business accounts a sizeable portion of the Australian economy.
• The small business contributes more than $1.5 trillion as revenue to the
Australian economy.
• In spite of their large contributions the small business are unable to attain
a large scale benefits than the larger counterparts
• The small business CGT concessions helps the taxpayers to reduce or
eliminate their capital gains based on sale of certain assets.

Types of Concessions
•15 year exemptions
•50% reduction in the active assets
•Exemptions relating to retirement
•Rollover exemptions

Criteria of eligibility
Satisfying the net asset value test
Meeting the test of active assets
Where the assets are in the form of shares
in the company or unit in the trust

OBJECTIVES OF SMALL
BUSINESS CONCESSIONS
• The objective of the small business concessions was to provide
eligible small business with the new platform of dealing with their tax.
• The objective of implementing the simplified tax measures was to
reduce the compliance of income tax by 95% of the business.
• The initial small business concession packaged enabled the small
business with the options of collectively adopting the four tax
treatment packages.

Small Business tax treatment packages
• Depreciation
• Cash accounting for income tax purpose
• simplified trading stock accounting rules
• Rules of claiming an immediate tax deductions
relating to the prepaid expenditure

History of tax measures for small business
• The provision of the small business was applied on the business that had
turnover of less than $1 million each year.
• The old system required ignoring the debtors and creditors with work-
in-progress only taxed when it is realised.
• Additional concessions were made available to the business that
included the CGT relief and the GST relief for accounting on the cash
basis

RECENT AMENDMENTS MADE TO THE SMALL BUSINESS
CONCESSIONS:
• SIMPLIFIED DEPRECIATION METHOD WHERE ASSETS CAN BE
DEPRECIATED AT HALF OF THE POOL RATE FOR THAT YEAR
• SIMPLIFIED RULES FOR TRADING STOCK WHERE SMALL
BUSINESS ENTITY IS NOT REQUIRED TO VALUE EVERY ITEM OF
THEIR TRADING STOCK IN HAND AT THE END OF THE YEAR OF
INCOME.
• CLAIMING IMMEDIATE DEDUCTIONS FOR PREPAYMENTS
RELATING TO THE PREPAID TAX EXPENSE IF THE QUALIFIED
PERIOD OF SERVICE IS LESS THAN 12 MONTHS.

Recent amendments made to the small business
concessions:
 Income tax on cash basis of accounting allows an entity to
continue make use of the accounting for cash basis for the
purpose of income tax.
 Business with larger debtors balance to defer the payment of
tax till the next income year in which money was collected.
 Accounting for GST for cash basis enables entities under the
new rules to account for GST based on the non-cash or
accrual basis.

EFFECTIVENESS OF THE METHODS
Introducing the new policies for the small business
concessions has helped in reducing the compliance
cost of tax that was faced by the business.
Small business are facilitated with the choice in
adopting simplified tax rules and has ultimate
resulted in reduced burden of compliance costs.

Further Recommendations
 The ability of the taxpayers to satisfy the $6 million
maximum test may be difficult to meet.
 It is recommended that the $6 million maximum net
asset value test should be replaced with some
alternative eligibility test.
 Revised aggregated turnover that would lead the
concession being reduced gradually above the
threshold limit.

Conclusion
 The results obtained suggest that small business entity concession is being widely adopted.
 The most popular small business concession were the CGT reliefs for small business with the adoption of
cash basis accounting for GST purpose.
 The simplified depreciations rules and the immediate deductions for prepaid expenses could be viewed as an
attempt in reducing the cost compliance for the business.