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Testing the waters on STS

SMALL business owners have to ask themselves whether or not they intend to take part in the Simplified Tax System.

The STS came into effect on July 1 and applies to small businesses that have had a turnover of less than $1 million for three of the past four years.

Businesses going for three years or less can apply turnover from their past three years or estimates for the forthcoming two years.

For those owning related businesses, this involves considering the total turnover of the group.

A business’ assets, not including premises, have to be worth less than $3 million.

The STS allows businesses to write-off assets worth less than $1,000. Otherwise, under new depreciation rules, businesses cannot write off assets worth less than $300.

Depreciation of assets worth more than $1,000 becomes easier. If the asset has a useful life of more than 25 years it goes into a 5 per cent depreciation pool.

The other assets go into a 30 per cent pool.

Businesses on STS have access to the old pre-paid rules. That means if they pay their expenses, such as rent, 12 months in advance, that amount can be claimed in the financial year it was paid.

It also removes the need for businesses to do a stocktake if the value of their stock at the start of the financial year and the “reasonably estimated” value of their stock at the end of the fiscal varies by less than $5,000.

But to apply the STS, businesses have to account on a cash

basis.

This may be fine for many small businesses, but some have set up their books on an accrual system because it gives them a better picture of how their business is travelling. Changing from accrual to a cash system can be a major exercise.

This means they have to make the choice of switching to cash accounting to take advantage of the STS, ignoring the STS and sticking to their existing accounting system, or running two sets of books.

Those with a bent for American history will remember that was how the FBI got Al Capone.

Fallon Group partner Tony Ince said most accountants were recommending their clients did not use the STS.

“The start up costs to rejig everything can be prohibitive,” Mr Ince said.

“If you go over the threshold turnover rate too often you have to revert to the old system.

“Accountants are under a lot of pressure now and this is just adding more work.”

Businesses with a turnover of more than $1 million for more than three years will be forced to leave the STS but will be allowed to return when they become eligible again.

However, those businesses that leave the STS voluntarily cannot return for five years.

Hayes Knight GTO manager Pip McIntyre said there were benefits in the STS for many small businesses.

“It’s a case where you have to assess if there are benefits in it for your business,” Ms McIntyre said.

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