Date issued: 30 May 2007

The Simplified Tax System (STS) was good before, but as a result of recent changes to the small business tax rules, its even better now, according to CPA Australia.

CPA Australia senior tax counsel, Garry Addison said that the changes to the small business tax rules, due to commence 1 July 2007, will offer some unique tax saving opportunities for small business owners.

‘To ease some of the tax burden on small business, the current Simplified Tax System (STS) was introduced in 2001. Currently, STS is open to businesses with a turnover of less than $1 million, and depreciable assets less than $3 million. However this is about to change, which provides some unique planning opportunities,’ Mr Addison said.

CPA Australia has prepared the following list of considerations to assist small business owners decide whether to switch to the STS.

Recent changes

Since July 2005 a business in the STS can retain its traditional accruals accounting basis for tax purposes rather than being required to use a cash basis. This has aligned the regime more closely with standard accounting practices and with the requirements of external lenders, such as banks.

The  reduction of the audit review period for STS taxpayers from four to two years at the same time, as part of the self-assessment changes, is also beneficial to small business operators who elect to join the STS.

From 1 July 2007, the new turnover threshold will be $2 million, and the $3 million depreciating assets test is to be removed. In addition, STS taxpayers will qualify for rollover relief for depreciating assets and the benefit of the enhanced CGT small business concessions, without having to meet the usual net assets threshold.

STS taxpayers – or small business entities, as they are now known – will also be eligible for additional concessions arising out of the introduction of the new small business framework from 1 July 2007.

These concessions include:

• annual apportionment of GST input tax credits and the choice to account for GST on a cash basis
• choice to pay GST by instalments
• FBT car parking exemption
• PAYG instalments based on gross domestic product (GDP) adjusted notional tax

Trading stock

The simplified trading stock regime enables small business to forgo the undertaking of a full stock valuation in certain circumstances.

‘The special tax regime for small businesses is definitely becoming more attractive. However, whether it is right for you depends on your individual circumstances. Because the implications are quite significant, small business operators would be wise to get some advice from a CPA before making a final decision,’ Mr Addison said.

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