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Easing the burden on business

GOVERNMENT regulations are an ongoing thorn in the side of business, with results from a recent Chamber of Commerce and Industry survey ranking this issue in the top five concerns of Australian businesses.

The Simplified Tax System (STS) is designed to ease some of the tax burden on small business. Benefits include immediate write-off for assets costing less than $1000, more generous and simpler depreciation, removal of the need for an annual stocktake, and an immediate deduction for business expenses paid up to 12 months in advance.

Participation in STS is optional but, to be eligible, businesses must meet three conditions.

p You must be carrying on a business.

p Your average annual turnover must be less than $1 million.

p Depreciating assets need to have been written down to less than $3 million at the end of the income year.

For businesses using STS, assets are depreciated faster than they otherwise would be. You can immediately write-off depreciating assets that cost less than $1000. Those that cost more than $1000 are depreciated at 15 per cent in the first year and 30 per cent in following years. Assets are pooled and depreciated together, so you don’t have to keep depreciation records for each individual asset.

With STS, you no longer need to do an annual stocktake, unless the value of trading stock changes by more than $5000. According to the Australian Tax Office, you can calculate this change using a reasonable estimate of your stock on hand at the end of the year.

STS will enable you to use cash accounting for income tax. Income will be recognised when it is received and expenses when you pay them.

If you are already using cash accounting for GST, this will help you align your GST and income tax position, making it easier to prepare your activity statement and income tax return.

With STS you can claim an immediate deduction for some prepaid expenses, including advertising or rent, paid up to 12 months in advance.

If you choose to enter STS there are a number of conditions. You must use all three elements – cash accounting and the simplified depreciation and trading stock rules, where they apply. STS applies to whole income years only, and not to parts of a year.

There are extra factors you need to take into account if your business is part of a larger group of businesses.

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