Small Business Enterprises Tax System (SBE)

The Small Business Enterprises (SBE) tax system comprises optional alternative methods that a small business can adopt to report their taxation affairs.

It can apply to all business structures (i.e. companies, partnerships, fixed and non fixed trusts and sole proprietors), who satisfy the eligibility criteria (see below) but excludes self managed super funds.

This system was designed to reduce the tax paid and the compliance costs faced by small businesses.

The SBE comprises six main elements:

1.    Simplified Depreciation Rules

     Most depreciating assets costing less than $1,000 each are written off immediately. Most other assets are pooled and deducted at a rate of either 30% or 5% depending on effective life.

2.    Simplified Trading Stock Rules

     Businesses only need to conduct a Stocktake and account for changes in the value of trading stock in limited circumstances.

3.    Prepayments

     A full deduction is available upfront for certain prepaid business expenses (i.e. generally up to 12 months e.g. insurance, interest, rent).

4.      GST Reporting

The “Cash Basis” of reporting / remitting GST to the ATO may be adopted (see Article: Goods & Services Tax (GST)).

5.      Capital Gains Tax (Concessions)

Various elections may be applicable to either defer or exempt Capital Gains Tax (CGT) applying to the disposal of Active Business assets (see Article: Capital Gains Tax Small Business Concessions).

6.      Time Limit to Amend Tax Assessments

The period of time available for either the ATO or the taxpayer to amend prior periods assessments is reduced from four (4) years to two (2) years.

Eligibility Criteria - $2 million aggregated turnover test

To be eligible the following tests must be met:

­       A business is carried on in that year.

­       The “aggregated” turnover of the entity for the previous year is less than $2 million.

­       If turnover in the previous year was greater than $2 million or this is the first year of business; then a reasonable estimate of current year turnover is less than $2 million.

Aggregated turnover is the sum of business turnover plus the turnover of any entities that the business is connected or affiliated with.