A Guide for Eligible Businesses
Small businesses have the opportunity to benefit from various tax concessions, which can be applicable to sole traders, partnerships, companies, or trusts.
Deciding whether your business qualifies as a 'CGT small business entity' for the income year is crucial.
Every, you should check your eligibility.
To meet the requirements for these concessions, the following criteria must be fulfilled:
- The business should run for all or part of the income year and have a turnover of less than $10 million.
Note that the $10 million turnover threshold doesn't apply to all tax concessions, as some specific concessions have different turnover thresholds.
It's important to note that only one Small Business CGT Concessions incentive can be applied to an asset.
In case multiple incentives are potentially applicable to an asset, the order of application is as follows (subject to opt-out choices):
Temporary Full Expensing:
Until 30 June 2023, eligible businesses with an aggregated turnover of less than $5 million can deduct the business part of the cost of eligible new depreciating assets.
For small to medium-sized businesses, temporary full expensing also extends to the business part of eligible second-hand depreciating assets.
Moreover, businesses can utilize temporary full expensing to cover the business portion of the cost of improvements made to eligible depreciating assets, even if they acquired those assets before 7.30 pm (AEDT) on 6 October 2020.
Instant Asset Write-Off:
An eligible business can claim an immediate deduction for the business part of the cost of an asset in the year it is first used, or installed for use.
Backing Business Investment:
The incentive offers the following key features:
If you're using the simplified depreciation rules for small businesses, you can claim 57.5% of the cost of the asset (for those assets that cost more than the instant asset write-off threshold) in the first year of adding the asset to the small business pool.
If you're not using the simplified depreciation rules for small businesses, you can claim a deduction of 50% of the cost or opening adjustable value of an eligible asset on installation. The existing depreciation rules apply to the remaining cost of the asset.
It's important to note that you cannot claim a backing business investment – accelerated depreciation deduction if your business is eligible for and utilizes temporary full expensing or instant asset write-off for the same asset.
General Depreciation Rules:
The general depreciation rules decide the allowable capital allowances based on the effective life of the asset.
You can generally choose between the prime cost method or the diminishing value method to calculate depreciation.
Even if your business doesn't qualify as a 'small business entity' for the Small Business CGT Concessions, you may still be eligible for certain other small business concessions.
These concessions are based on your aggregated turnover, which includes your annual turnover and the annual turnover of any connected business or affiliate.
If you're unsure about accessing these concessions or have any questions, we encourage you to initiate a conversation with us. We are here to help you.
Want to know more about ATO Small Business CGT tax Concessions