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Alignment of small business tax concessions thresholds
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Update 13 May 2008 - Enhancement to small business CGT concessions 
 
The Government announced in the Budget that it will go ahead with enhancing access to the small business capital gains tax (CGT) concessions for taxpayers owning a CGT asset used in a business by a related entity and for partners owning a CGT asset used in the partnership business, with effect from the 2007-08 income year.  
 
This is one of the announced but unenacted measures made by the previous government that the Rudd Government has decided to proceed with, as announced by the Treasurer and the Assistant Treasurer in their joint media release. 
 
Currently, the small business entity test does not cover business structures where the CGT asset is owned by an entity but is used in a related entity which carries on the business. In addition, for partnerships, the small business entity test requires the taxpayer making a capital gain to be a partner in the partnership and for the asset to be an asset of the partnership. 
 
The new measure will allow these structures and assets to qualify for the CGT small business concessions via the $2 million aggregated turnover test.  
 
Legislation is expected to be introduced in the Winter or Spring sittings this year. 
 
21 June 2007 
 
Tax Laws Amendment (Small Business) Bill 2007 containing the measures to align the thresholds for the various small business tax concessions received royal assent on 21 June 2007. These measures were announced by the Treasurer and the Minister for Small Business and Tourism in their joint press release on 13 November 2006 and introduce legislation to standardise the thresholds for small business tax concessions from 1 July 2007, which was a great win for small business. 
 
Under these measures, an entity will be a small business entity if it:

  • carries on a business; and
    •  
  • satisfies the $2 million aggregated turnover test.
Entities that satisfy this test can choose to access the following concessions (subject to any additional criteria set out in the particular concessions):
  • small business CGT concessions (i.e. 15-year asset exemption, 50 per cent active asset reduction, retirement exemption and small business roll-over)
    •  
  • those under the simplified tax system (STS) - eg simplified depreciation rules, simplified trading stock rules, immediate deduction for certain prepaid business expenses
    •  
  • choice to account for GST on a cash basis, annual apportionment of GST input tax credits and choice to pay GST by instalments
    •  
  • FBT car parking exemption
    •  
  • PAYG instalments based on gross domestic product adjusted notional tax.
Small business entities will also have the benefit of a limited two-year amendment period.  
 
Other measures include:
  • Increasing the maximum net asset value test for accessing the small business CGT concessions from $5 million to $6 million
    •  
  • Extending the roll-over relief available under the uniform capital allowance regime to any business with a turnover of less than $2 million
    •  
  • Increasing the STS turnover threshold from $1 million to $2 million and removing the $3 million depreciating assets test
    •  
  • Increasing the GST cash accounting threshold from $1 million to $2 million.
The measures generally apply from the 2007-08 income year.  
 
The Institute has been heavily involved in lobbying for these amendments, including two recent submissions on the exposure draft of the Bill released earlier this year.  
 
Find more information on our lobbying efforts. 
 
These measures reflect the main recommendations the Institute made in its report, Research and recommendations on the definition of small business, released earlier this year and prepared by Atax, Faculty of Law, University of New South Wales. The primary focus of the report was to develop a definition of small business that can be used consistently throughout Australia's income tax (including CGT), FBT and GST legislation. A copy of the report can be found on the Institute's website.