Completing the schedule

S1 simplified tax system (STS) elections

Small business tax changes

New streamlined provisions for small business entities have replaced the former simplified tax system (STS). Broadly, to use the simplified taxation rules a small business entity must carry on business and have an aggregated turnover of less than $2 million. For more information, see Small business entity concessions.

The former STS elections are no longer required.

Did you carry on a business at any time during the year and have an aggregated turnover of less than $2 million or are you a former STS taxpayer?

No	Go to P1 Personal services income (PSI).
Yes	Read on if you want to find out more about the small business entity concessions. (You do not have to complete any questions at this item.).

Small business entities

You need to know

From the 2007–08 income year, small businesses with an aggregated turnover of less than $2 million are called 'small business entities' and may qualify for a range of tax concessions.

Eligible businesses can choose to use the concessions that best suit their needs. It is not necessary to elect to be a small business entity each year in order to access the concessions. Nonetheless, eligibility must be reviewed each year.

The simplified tax system no longer operates. However, all of its concessions remain available to eligible businesses.

A small business entity may be eligible for the following concessions:

• CGT 15-year asset exemption
• CGT 50% active asset reduction
• CGT retirement exemption
• CGT small business rollover
• Simplified depreciation rules
• Simplified trading stock rules
• Deducting certain prepaid business expenses immediately
• Entrepreneurs' tax offset
• Accounting for GST on a cash basis
• Annual apportionment of GST input tax credits
• Paying GST by quarterly instalments
• Fringe benefits tax car-parking exemption
• Pay as you go (PAYG) instalments based on gross domestic product (GDP) – adjusted notional tax.

Eligibility

You are a small business entity if you are carrying on a business and have an aggregated turnover of less than $2 million.

Aggregated turnover is your annual turnover plus the annual turnovers of any entities that are connected with you or that are your affiliates. Using aggregated turnover prevents larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions.

You must review your eligibility each year.

For more information on the aggregation rules, see Small business entity concessions – Aggregation on our website or phone the Business Infoline.

Calculating your turnover

Turnover includes all ordinary income earned in the ordinary course of business for the income year. The following are some examples of amounts included and not included in ordinary income.

Include these amounts	Do not include these amounts
sales of trading stock fees for services provided interest from business bank accounts amounts received to replace something that would have had the character of business income, for example, a payment for loss of earnings	GST charged on a transaction amounts borrowed for the business proceeds from the sale of business assets insurance proceeds for the loss or destruction of a business asset capital gains amounts received from repayments of farm management deposits

There are special rules for calculating your annual turnover if you have retail fuel sales or business dealings with associates that are not at market value.

The business operated for only part of the year

If you carried on a business for only part of the income year, your turnover is worked out using a reasonable estimate of what the turnover would have been if you had carried on the business for the whole of the income year. This includes winding up the business.

Satisfying the aggregated turnover threshold

Your business satisfies the $2 million aggregated turnover requirement if you meet one of the following:

• your aggregated turnover for the previous income year was less than $2 million
• you estimate at the beginning of the current income year that your aggregated turnover for the year will be less than $2 million (and your aggregated turnover in each of the previous two income years was not more than $2 million), or
• your actual aggregated turnover, worked out at the end of the income year, was less than $2 million. You only rely on this test if you do not satisfy either of the other two. If you satisfy this test only, you cannot use the GST and PAYG concessions for the income year.

For more information about these small business entity concessions, see Small business entity concessions.

Former STS taxpayers

Although the STS has now ceased, you may continue using the STS accounting method if you:

• were in the STS in the 2006–07 income year
• have been using the STS accounting method continuously since the 2004–05 income year, and
• were a small business entity in the 2007–08 income year.

If you meet these three requirements, you can continue using the STS accounting method until you choose not to or you are no longer a small business entity.

If you continue to use the STS accounting method, you base the amounts you include at item P8 on the STS accounting method. If your accounting system or financial statements do not reflect the STS accounting method, you may need to make additional reconciliation adjustments at Reconciliation items item P8 (for more information, see Reconciliation items). If you have a particular type of ordinary income or general deduction that had to be apportioned or altered under STS – for example, double wool clips or prepayment of a business expense for a period greater than 12 months – you continue to apportion or alter them and make adjustments at Reconciliation items.

Business income and expenses that have not been accounted for using the STS accounting method – because they had not been received or paid during the previous income year – are accounted for in the current income year. You may need to make additional reconciliation adjustments at Reconciliation items.

The STS accounting method does not apply to income or deductions that receive specific treatment under income tax law – for example, net capital gains, dividends, depreciation expenses, bad debts and borrowing expenses.

For more information about the STS accounting method, visit our website or phone the Business Infoline (see More information).

Assets previously in an STS pool

You may be treated as having allocated assets that were previously in a general STS pool or a long-life STS pool to a general small business pool or long-life small business pool respectively. See More information.