Last year the Federal Budget was announced for the 2020/21 year with a few fundamental changes for small and medium businesses. One of the most significant changes was with the Small Business Entity (SBE) and COVID-19 measures tailored explicitly towards small businesses.
We look further into exactly what these changes are and what they mean for your small business.
What is an SBE?
SBE stands for Small Business Entity, and the recent changes mean the small business entity threshold has changed from previously being $10 million to $50 million in aggregated turnover.
That is, where the business’ ‘aggregated turnover’ (taking into account the turnover of the entity carrying on the company and the turnover of its related parties) is less than $50,000,000, it will be able to access most of the concessions available to SBE taxpayers.
Your tax advisor can check if your business will be eligible for small business entity concessions and can also give you advise on other ways you can be saving money in your business. You must review your eligibility each year to check if you are able or required to use a particular concession.
Key dates to consider
Previously your business was considered a small business if your turnover was less than $2 million.
From 1 April 2017, the turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million.
From 1 July 2020 – businesses that were not small businesses because their turnover is $10 million or more but less than $50 million could also access an immediate deduction for certain start-up expenses and prepaid expenditure.
*From 1 April 2021 – the turnover threshold for FBT concessions will increase to $50 million.
From 1 July 2021 – businesses that are not small businesses because their turnover is $10 million or more but less than $50 million may also be eligible to access these small business concessions.
Some of these concessions are:
- Simplified trading stock rules
- PAYG instalments concession
- A two-year amendment period excise concession
How do you find out if you’re eligible as a small business for this income year?
There are three methods to work out if you are a small business for the current income year, and the ATO has a breakdown of how these methods are used.
Method 1 – Use your previous year’s turnover
Method 2 – Estimate your current year turnover
Method 3 – use your actual current year turnover
What happens if you’re not a small business in an income year?
You still may be able to access certain concessions if you don’t qualify for the small business entity.
These may be:
- Capital Gains Tax concessions
- Fringe Benefit Tax car parking exemption
- Superannuation clearing house if you have fewer than 19 employers
- Lower company tax rate
Another tax initiative by the Government is to provide tax-free cash flow boosts of between $20,000 and $100,000 to eligible small and medium enterprises and not-for-profit organisations that employ individuals. Eligible entities will automatically receive payments upon lodgement of activity statements for the March to September 2020 reporting periods.
Small business tax concessions
Businesses that prove eligible will be able to access:
- Up to 10 small business tax concessions, including deductions of specific start-up and prepaid expenses
- Exemptions from the 47 per cent FBT tax on car parking and multiple work-related portable electronic devices, such as phones or laptops
For more information on how we can help you with your finances and tax decisions, get in touch with one of our friendly team members at Total Accounting Partners on the Sunshine Coast or in Redcliffe today!
Jason is the director at Total Accounting Partners on the Sunshine Coast and in Redcliffe. He has been working as an accountant for over 16 years. He has experience in Public, Corporate, Management and Government accounting services and all aspects of accounting including Tax Planning, Superannuation, Structuring and Acquisitions. Jason is Xero certified and lead the team to Gold Partners with Xero.