• Federal Budget 2020-2021

Expanding Access to the Small Business Tax Concessions

The Government has announced plans to increase the turnover threshold for Small Business Entities (SBEs). Eligibility for the concessions has been increased to medium-sized entity tax payers with an aggregated annual turnover of greater than $10 million but less than $50 million. While this is great news, taxpayers will have to wait until the next financial year to reap the benefits.

Three Step Plan – Changes for the 2021 and 2022 Income Years

The intended changes will be applied in three phases, with the majority of concessions becoming available after 1 July 2021. These concessions have previously only been available to taxpayers with aggregated turnover of less than $10 million. The change is expected to provide access to these concessions to an additional 20,000 businesses.

The first phase will allow SBEs to gain access to the following concessions from 1 July 2020:

  • The ability to immediately deduct certain start-up expenses which are ordinarily considered capital in nature
  • The ability to deduct certain prepaid expenses.

These concessions have traditionally been accessed by start-up entities and should assist new businesses with the difficult first few years. Regardless, taxpayers should ensure they meet the other conditions of these concessions.

Additional relief will also be available to SBEs for the 2022 Fringe Benefits Tax year, as more employers will gain access to significant concessions.

The greatest relief will be available to those businesses that survive until the 2022 income year, with the majority of concessions becoming available from 1 July 2021, including access to the:

  • Simplified trading stock rules
  • Pay-As-You-Go Instalment administrative concession
  • Excise concessions
  • Two-year amendment concession
  • Simplified accounting method for GST purposes.

These concessions are largely administrative and may not provide the cash-flow relief that many businesses expect.

BDO Comment

The reduction in the SBE turnover threshold may appear to be a massive boost to thousands of taxpayers. However, there is a risk that the relief will come too late. As Australia’s economic crisis deepens, the next seven months will be critical for many SBEs. While many of these concessions may provide administrative relief for taxpayers, taxpayers should be cautious as these concessions can be a double-edged sword. Moreover, the Government has again failed to improve access to the Capital Gains Tax Small Business Entity tax concessions, with the turnover threshold remaining at $2 million.