Semester 2 MA613: Small Business Entities and Tax Concessions Analysis

This report analyzes the tax concessions available to Small Business Entities (SBEs) in Australia. It begins by defining SBEs according to the criteria set by the Australian Taxation Office (ATO), including turnover thresholds and business activity requirements. The report explains the rationale behind these favorable tax treatments, emphasizing the significant role SBEs play in the Australian economy, particularly in employment and economic growth. It details the importance of properly identifying SBEs to prevent revenue loss and ensure that concessions are appropriately applied. The report outlines the planning considerations taxpayers must address to qualify as an SBE, including the necessary business structure and compliance with turnover limits. It references the ATO's guidance and relevant taxation rulings. Furthermore, the report highlights the main tax concessions available to SBEs, such as special GST installments, income tax offsets, immediate asset write-offs, simplified trading stock rules, and capital gains tax concessions, along with corporate tax rates. The report also discusses significant government policies and legislative changes affecting SBE tax treatment, including the Treasury Laws Amendment Bills and the instant asset write-off scheme. Finally, it summarizes the current criteria used by the ATO in assessing SBEs, emphasizing the importance of carrying on a business activity and adhering to the turnover threshold. The report concludes by noting the objectives of CGT concessions for SBEs and the role of the taxation authority in governing these entities.

Small Business
Entities
SMALL BUSINESS ENTITIES AND THEIR TAX CONCESSIONS

Criteria for determining SBE
(Small Business Entity)
As per the criteria set by the ATO
 The entity is required to be a sole trader, a company or a trust,
 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.
 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.

Reason for the significant
favourable treatment given to
SBEThe reasons for which the small business entities have been given such relaxations
and concessions in relation to taxation can be discussed as follows:
 The small business entities have suffering from attaining the required economies
of scale as compared to large concerns.
 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.
 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.
 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.

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 benefits, it would prevail to be more advantageous
over small business entities.
 Moreover, this would lead to the tax avoidance being observed by the large by declaring themselves to be a small business
entity. There for the purpose of extending the benefits, the proper identification of the entity as an SBE is necessary. Hence,
the definition of SBE is important.

Kind of Planning that a Taxpayer
Conduct in order to ensure they
are Conducting an SBE
 The entity is required to be a sole trader, a company or a trust. 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.
 It has been accounting for a turnover below the threshold of $10 million.
 Again, the satisfaction of the company with respect to the turnover requirement will not be
enough to consider or declare it to be a small business entity for the purpose of availing tax
concessions and tax benefits.
 This requirement mentions the small business entities to have a threshold below 10 million
dollars with respect to annual turnover in the previous year in which state has been
operating its business operations.
 In cases where the entities have been involved into business having accrued turnover
exceeding the threshold in the preceding year of the previous year in which it has been
operating its business activities but has failed to meet the threshold in the previous year
would not be given a treatment under the taxation regime as a small business entity for
availing tax concessions. The determination of the entity is a small business entity is
required to be construed from the nature of the operations and the threshold mentioned
would depend highly upon the industry in which the business has been operating.

Guidance given by the ATO
regarding qualification as an SBE
and the Taxation Ruling
Supporting it
 A proper treatment for the purpose of determining a business entity to be a small business
entity has been settled by the Australian Taxation Office under the Taxation Ruling 2019/1.
 The first criteria that has been mentioned and which has the utmost importance in the
determination of an entity to be a small business entity is the assurance that it has been
carrying on a business activity.
 For the purpose of determining the other requirement as to the turnover threshold it needs
to be satisfied that the mayor satisfaction of the threshold in the previous year will not
suffice if the company has failed to ensure the same in the years preceding the previous
year.
 Any company which can be traced to be operating as a small business entity would be
extended with the treatment of lower rate of corporate taxes. The entities operating
business activities are required to comply with the ITRA 1986, s 23, for the purpose of
being rendered as a small business activity.
 Moreover, this ruling also requires the company to have been involved in a small scale of
business activity for the purpose of availing the concession for small business entity.

Significant Advantages Available
to an Entity that Qualifies as an
SBEThere has been certain main concessions that are available for the small business entities which can be discussed
as follows:
 The taxation legislation has created certain special instalments with respect to GST for the small business
entities to pay under quarterly arrangements.
 The small business entities would avail the offset with respect to income tax involving individuals.
 There have been a special arrangement for cooling as well as immediate deductions with respect to their
appreciating assets that has been formulated for the purpose of extending concessions to SBE.the small
business entities are also under and entitlement to claim immediately deductions with respect to certain capital
expenses that has the association with initiating business.
 Moreover, the trading stock rule with respect to small business entities have also been simplified for the
purpose of assisting the small entities to evade the complications of the computation of trading stock.
 The small business entities are also extended with capital gain taxation.
 The corporate rate of tax has also been specially designed for the purpose of small business entities and is
required to be imposed upon them as per the requirement of the industry involved.
 There has been a restructure roll over relief available for the small business entities for the purpose of
encouraging their progress.
 It has also been extended with the concession regarding payment deduction in advance.
 Moreover, periods of assessment has been considered as two years for the purpose of small business entities as
contrary to the four year amended periods of assessment.

The Significant Events and
Government Policy regarding the
Tax Treatment of SBE’s in
Australia
 There has been a proposed reduction in the rate of corporate tax with respect to
entities of corporate nature carrying on business ventures and accounting for
aggregate turnover of below the threshold of 25 million dollars for the 2017-18 year of
income as well as $50,000 or below that for the year 2018-19 year of income.
 This proposed reduction in the rate of corporate taxation has been introduced by virtue
of the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 as released on 1st of
September 2016.
 The Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 Bill has received
the assent on the 19th of May 2017.
 Another bill has been introduced by the government in the year 2017 on 18th October
which has been referred to as the Treasury Laws Amendment (Enterprise Tax Plan Base
Rate Entities) Bill 2017. This bill has provided the eligibility of availing low rate of
corporate taxes to the entities, which has turnover to be aggregated to satisfy the
minimum threshold along with a base rate entity passive income accounting for 80%
or below.

Significant Events and
Government Policy regarding the
Tax Treatment of SBE’s in
Australia
 This alteration has been brought by the simplification in the rules of
depreciation, which can also be referred to as the instant asset write off.
 Under this alteration, the small business entities have an entitlement of
claiming deduction with respect to each and every assets that has been used
by them for the first time or has been installed for being used. Any asset
which falls below the minimum threshold would give the owner of the same
being a small business entity to claim deductions with respect to multiple of
such assets.
 From the date of 2nd April 2019 there has been an instance write offs with
respect to assets, which has also been expanded to cover the businesses
having a turnover from 10 million dollars to below the threshold of 50 million
dollars.
 However for the acids that has been purchased for a price of $30,000 or
beyond would be treated with the general rules for depreciation.

Current Criteria used by the ATO
in regard to the use of a SBE in
Australia
 The Australian Taxation Office required certain conditions to be satisfied by a business entity to avail
the conditions regarding taxation.
 The determination of an entity to attain the status of a small business entity is required to be
conducted with respect to the requirements provided by the Australian Taxation Office.
 This requires the entity to have been carrying out business activities in the form of a company, a sole
trader or a trust. However for the purpose of being rendered as the small business entity the carrying
out of business or operating in business activities is a necessity.
 Moreover, the operations with respect to business activities is required to be carried out irrespective of
the span of time for which it has been carried out.
 For the purpose of inclusion in the small business entities, the entities required to carry out business
for a particular part or even the whole of the business.
 Moreover, threshold of 10 million dollars is required to be abided by the entity to be included within the
small business entities required.
 However these requirements act as a guiding line and not as a stringent mandate.
 The commissioner of taxation while assessing the business entities to be included in the small business
entities would considered the circumstances of the case as well as the situation of the industry norms
prevailing.

Comments
 The objective of the federal government for introduction of CGT
concessions to small business entities was to remove the
constraints with respect to efficient management of assets,
improvement of capital mobility, reduction in complexity and cost
compliance.
 There have been stringent tests that has been provided by the
taxation authority to govern these entities and their tax
endeavours and concessions provided.
 Although this has been positive step towards the improvement of
the small business entities but it has a probability of revenue loss
being caused to the taxation authorities by the large entities by
taxation concessions by declaring themselves to be small
business entities with the statement of their turnover and other
requisites.