What is a small business entity in Australia for tax purposes?
In Australia, a small business entity for tax purposes generally refers to a business with an aggregated turnover of less than $10 million. This status grants access to various tax concessions, simplifying compliance and reducing tax liabilities.
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How it works in practice
Understanding Small Business Entity Status
A "small business entity" in Australia for tax purposes is primarily defined by its aggregated turnover. For most common tax concessions, this means your business, along with any connected or affiliated entities, must have a total annual gross income (aggregated turnover) of less than $10 million. This threshold is assessed each income year.
Being classified as a small business entity provides access to a range of tax concessions designed to support small enterprises. These concessions can include simplified GST reporting, a lower company tax rate (for base rate entities), immediate deductions for certain assets, and simpler trading stock rules. It aims to reduce the compliance burden and free up resources for growth.
Aggregated Turnover Explained
Aggregated turnover is crucial for determining small business entity status. It includes your business's gross ordinary income and statutory income (excluding GST), plus the gross income of any entities you are connected with or affiliated with. This combined figure ensures that larger business groups do not artificially split into smaller entities to access concessions meant for genuine small businesses. This calculation must be performed annually.
Important exceptions
The primary $10 million aggregated turnover threshold applies to most small business tax concessions. However, some specific concessions have different thresholds. For instance, the lower company tax rate applies to businesses with an aggregated turnover under $50 million, and the research and development (R&D) tax incentive has a higher threshold. It is crucial to check the specific eligibility criteria for each concession you intend to claim, as the definition of a small business entity can vary slightly for different purposes.
Furthermore, businesses are generally only responsible for tax deductions/claims for damage caused by them and not normal wear and tear, and also must have the appropriate documentation to make any claims.
What you should do now
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Calculate your business's gross ordinary and statutory income for the financial year.
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Identify and include the gross income of any entities connected with or affiliated with your business.
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Compare your total aggregated turnover to the $10 million threshold (or higher thresholds for specific concessions).
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Determine which small business tax concessions your business is eligible for based on its aggregated turnover.
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Notify the Australian Taxation Office (ATO) of your eligibility and elect to use the relevant concessions when lodging your tax return.
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