Date issued: 5 June 2008

Small businesses can potentially access up to 13 separate tax concessions following wide ranging changes effective from 1 July 2007.

The concessions can help start up companies and micro businesses, reduce ongoing compliance and provide potential savings on the wind up or sale of a small business.

The new streamlined rules offer a whole range of concessions not previously available including access to small business CGT concessions, an FBT car parking exemption and more flexible options for paying and reporting PAYG instalments and GST.

Eligible small businesses can determine which of the 13 concessions apply in a particular year. Whilst some concessions apply automatically, others require additional conditions to be met before they can be used.

CPA Australia's senior tax counsel, Mark Morris, said the tax concessions are a boon for small business and a significant extension of the benefits previously available under the simplified tax system.

'Small businesses can obtain significant benefits by being able to write off any depreciating assets costing less than $1000, and by pooling assets over $1000 and depreciating them at accelerated rates. Businesses can also claim immediate deductions for certain prepaid expenses.'

'Start up entities can also access the entrepreneur's tax offset which may reduce the tax payable on business income by up to 25 per cent where turnover is less than $75,000. This can be a real perk for micro businesses who will be cash strapped in their initial years as they build a business. Moreover, this will not be means tested for the 2008 financial year,' says Morris.

To be eligible for the concessions an entity must carry on a business and have an annual turnover of less than $2 million. This turnover amount is the amount of gross income derived by the business and that of any connected or affiliated entity.

The biggest change is that more entities now potentially be eligible for the small business CGT concessions. Previously, such concessions were only potentially available to businesses whose net CGT assets did not exceed a threshold which for the 2008 income year is $6 million. Under the revised rules, entities satisfying either threshold test may be able to use these concessions. This means that entities with assets exceeding the $6 million threshold will be potentially able to access the concessions if they have a low turnover below the $2 million threshold.

Where other eligibility criteria are met the capital gains tax savings are significant. For example, a full CGT exemption will be available under a concession where a business asset has been held for 15 years or more, and the taxpayer is either 55 and retiring, or has become permanently incapacitated.

Alternatively, where a business asset has been held for less than 15 years there will be an automatic 50 per cent reduction of any gain if all the relevant conditions are met. Taxpayers may also qualify for other concessions to reduce the balance of their CGT liability such as the $500,000 retirement exemption and the small business exemption.

Consult the Australian Taxation Office website for further information or see your CPA tax agent.

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