Simplified Tax System For Small Businesses


Small businesses Australia wide are eligible to use the simplified tax system, which provides a plethora of tax benefits not normally available.

In order to be eligible to use the simplified tax system, two criterions must be satisfied:

1: Your annual turnover must be less than 2 million.

2: You must be carrying on a business (as either a sole trader, partnership, company or trust).

The simplified tax system provides the following tax benefits:

1: Assets costing less than $6,500 are to be deducted immediately, as opposed to being depreciated using conventional methods.

2: Assets costing $6,500 and over are not subject to conventional depreciation methods, rather placed in either a general (effective life of less than 25 years) or long life pool (effective life of more than 25 years). The general life pool has a depreciation rate of 30% (or 15% for assets acquired in the current tax year), where as the long life pool has a depreciation rate of 5% (or 2.5% for assets acquired in the first year).

3: An immediate deduction of $5,000 is available on the purchase of motor vehicles in addition to a 15% depreciation rate on the first year of acquisition (30% for subsequent years).

Two quick points to note:

Prior to the 2012 – 2013 income tax year only assets costing less than $1,000 were eligible for the immediate write-off (including motor vehicles (accelerated motor vehicle depreciation was not introduced until the 2012 – 2013 income tax year).

If you decide to cease using simplified tax system, you will not be eligible to use simplified tax system for at least five years since you have stopped using them.

For an in depth discussion regarding the simplified tax system, please contact your accountant.

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