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Increased SBE Turnover Thresholds from 1 July 2016
On 1 September 2016, the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 was introduced into Federal
Parliament (refer http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5684).
The Bill introduces a variety of tax changes proposed in the May 2016 Federal Budget (including proposed corporate
tax rate reductions commencing from 1 July 2016 – see separate Tax Astute snapshot for a summary of these
changes). The new legislation also includes previously announced measures to increase access to tax concessional
Small Business Entity (SBE) status for business individuals and entities by increasing the existing < $2 Million
aggregated turnover threshold, in most cases to < $10 Million, with effect from 1 July 2016. This substantial proposed
increase to the SBE threshold may be significant for businesses with between $2 Million and $10 Million aggregated
business turnover.
Note that a Small Business Entity (SBE) is defined in current Subdiv 328-C ITAA 1997 as generally including an
individual or entity which:

carries on business in the current income year; and

has current or prior year aggregated turnover (subject to some exceptions) equal to the business ordinary
income of the tested entity, its connected entities and affiliates and which is below a specified threshold.
Existing SBE provisions will remain unchanged apart from increased thresholds and some clarification regarding the
unincorporated SBE offset (see below).
The following diagram illustrates the numerous tax concessions which may be accessed by a business entity if the new
changes are enacted as planned. The majority of concessions will be available to SBE’s with < $10 Million Aggregated
turnover, although lower turnover thresholds will apply for Small Business CGT and Unincorporated SBE offset
purposes (as shown at E and F below). Key Features of each concession are explained in more detail below.
Small Business Entity
(SBE) Concessions
from 1/7/16
(< $10 Million
Aggregated Turnover
unless indicated)
A
SBE Depreciation
(Subdiv 328-D)
B
Simplified Trading
Stock
(Subdiv 328-E)
C
GDP Adjusted PAYG
Instalments
D
SBE
GST/BAS
Concessions
L
SBE Asset
Restructure
Roll-over
K
SBE
Prepayment
Deduction
(s 82KZM)
Small Business
Entity (SBE) Status
Div 152 Small Business < $2 Million
CGT SBE
E CGT Concessions
F
Unincorporated SBE
Individual Offset
(AUTOMATIC)
< $5 Million
OFFSET
SBE
J
Immediate Deduction
for business start-up
costs (s 40-880(2A))
(AUTOMATIC)
FBT s 58GA
Car Parking Exemption
OR
S 58X Identical Work
Items concession
from 1/4/17
I
(AUTOMATIC)
H
G
SBE 2 Year
Amendment Period
(AUTOMATIC)
Reduced 27.5%
Company Tax Rate
in 2016/17 ONLY
(AUTOMATIC)
Note that concessions marked "Automatic" (see items F to H above) will automatically apply if eligibility
requirements are met. Other concessions generally involve a taxpayer choice whether or not the concession should
be used. The benefits, disadvantages and requirements of making such a choice must be carefully considered and
will be explained in detail in Tax Astute training sessions and client materials.
Note also that SBE status will be relevant to a corporate tax entity achieving a lower 27.5% tax rate in 2016/17 only.
A new concept of Base Rate Entity (BRE) will become the relevant requirement from 2017/18 (see separate
corporate tax rate Tax Astute Snapshot for details).
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
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Increased SBE Turnover Thresholds from 1 July 2016
Key Features of each of the above common SBE concessions are as follows:

Item A – SBE depreciation in Subdiv 328-D ITAA 1997 currently allows SBE taxpayers to choose to:
o
immediately write-off depreciating assets costing below a specified threshold (currently $20,000 but only
$1,000 from 1 July 2017 onwards); and
o
compulsorily include all higher value depreciating assets in a SBE depreciation pool at a 15% flat rate for the
first year (30% for later years).

Item B – SBE simplified trading stock rules – which may be chosen in limited cases to reduce stocktake
requirements for tax, but only where the difference between opening and closing stock on hand will be < $5,000.

Item C – PAYG instalment concession (in s.45-130 Sch 1 of the TAA 1953) which allows a quarterly pre-printed
GDP-adjusted instalment option to be paid by corporate SBE’s instead of a calculated PAYG income tax
instalment.

Item D – Various GST/BAS SBE concessions, most of which have additional eligibility requirements and include:
o
the ability for an SBE to choose the GST cash basis;
o
the ability to choose pay pre-printed GST instalments provided by the ATO; and
o
the ability to choose annual apportionment of GST ITC’s allowing a full up-front ITC’s with a single increasing
adjustment after year end to allow for private use.

Item E – Div 152 Small business CGT concessions will importantly remain unchanged from their current eligibility
requirements as a CGT SBE will continue to require business aggregated turnover of < $2 Million.

Item F – Subdiv 328-F ITAA 1997 unincorporated SBE individual offset which has been available to individuals
behind unincorporated SBE’s (e.g. partnership and trust SBE’s) since 1 July 2015. The operation of this offset will
be clarified and expanded under the new legislation and will be subject to a lower < $5 Million aggregated
turnover threshold – see below for details.

Item G – The reduced 27.5% corporate tax rate which will be available to SBE taxpayers in 2016/17 but will
importantly be replaced with Base Rate Entity (BRE) status from 2017/18 as noted above. In most cases a SBE will
also be a BRE due to similarities between the two tests – see separate corporate tax rate Tax Astute Snapshot for
details).

Item H – Access to the general 2 year assessment amendment period in s 170 ITAA 1936 for SBE’s and some
beneficiaries of SBE trusts. Note that specific amendment periods exceptions often apply to particular income tax
assessment items notwithstanding a general 2 year amendment period.

Item I – SBE FBT concessions (which will commence to apply from 1 April 2017) such as:

o
the s 58GA FBTAA 1986 FBT car parking exemption, with the < $10 Million business ordinary income
aggregated turnover test generally more concessional than the existing $10 Million ordinary plus statutory
income test for eligibility; and
o
the ability for an SBE employer to provide > 1 identical work related item within a single FBT year (e.g. 2
work related mobile phones or a work laptop and equivalent tablet) FBT exempt if other s 58X exemption
requirements are satisfied.
Item J – An immediate SBE deduction for specified eligible business start-up costs (in place of the usual 20% p.a.
s 40-880 5 year write-off) if eligibility requirements in s 40-880(2A) ITAA 1997 are satisfied.
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
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Increased SBE Turnover Thresholds from 1 July 2016

Item K – The SBE prepayment deduction which may allow an up-front deduction of eligible prepaid expenditure
instead of apportionment over 2 different income years under s 82KZM ITAA 1936.

Item L – Access to the new SBE asset restructure roll-over in Subdiv 328-G ITAA 1997 which may allow eligible
SBE’s and connected entities to defer income tax consequences for business active assets rolled-over to a new
entity under a "genuine restructure". These new provisions are complex and numerous restrictions to the rollover’s application may be encountered (e.g. see the recent ATO publication ATO LCG 2016/3).
Note that the detailed eligibility and other requirements for the above concessions (apart from minor changes to
the Item F offset below) will be unchanged. This existing ATO link https://www.ato.gov.au/Business/Smallbusiness-entity-concessions/ may therefore provide a useful initial overview of the above SBE concessions.
Additional Unincorporated SBE Offset Changes
As noted above, the operation of most SBE concessions will be unchanged by the Bill (apart from an increased
aggregated turnover threshold for all SBE Concessions other than Small Business CGT). The unincorporated SBE offset,
(designed to compensate unincorporated SBE’s which will not benefit from the corporate tax rate reduction - see
separate Tax Astute Snapshot) did, however, have further concessional changes proposed in this year’s Federal Budget
(in addition to the increased < $5 Million aggregated turnover threshold applicable for offset purposes).
While unincorporated SBE’s will receive no tax rate reduction, the individuals behind such SBE’s may continue to be
eligible for a personal tax offset of up to $1,000 per individual under existing Subdiv 328-F ITAA 1997. This offset will
continue to be limited by a statutory calculation which involves the individual’s net SBE taxable income, their total
taxable income (and their basic tax liability on it) and a statutory percentage (5% for the 2015/16 year). This statutory
percentage will be increased as follows, with a view to reflecting corporate SBE tax cuts:

2016/17 to 2023/24 inclusive– 8%;

2024/25 – 10%;

2025/26 – 13%;

2026/27 – 16%.
As shown in the diagram below, the offset’s 8% statutory percentage proposed for 2016/17 would result in a $1,000
(capped) offset based upon the specific amounts involved. Had the same amounts applied in 2015/16 (statutory
percentage = 5%) the resulting offset would have been approximately $635.
Partnership
SBE
(< $5
Million)
SOLE TRADER
(< $5 Million)
NET SBE Income
A
Trust SBE
(< $5
Million)
Share of
PARTNERSHIP
Net SBE Income B
C
Share of
TRUST
Net SBE
Income
NOTE
If individual < 18 years old (&
subject to
Div 6AA ITAA 1936
Penalty Taxation)
=
OFFSET CALCULATION
restricted to
genuine business income as
Partner or Sole Trader ONLY
(& subject to s 102AE(5)
special calculation rules)
INDIVIDUAL
Non-Refundable Offset for
Year
(UP TO $1,000 MAXIMUM)
e.g. $40,000
Individual’s
NET SBE
Taxable Income
(at A,B &/or C)
Individual’s
TOTAL
Taxable Income
X
Individual’s Total
Basic Income Tax Liability
(on Total Taxable Income)
(s 4-10 ITAA 1997
X 8%
=
e.g. $1,017 result
BUT
CAP claim @ $1,000
e.g. $63,547
e.g. $200,000
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
UNINCORPORATED Small Business Entity
(SBE) Income
Non-Refundable Offset for INDIVIDUALS
2016/17
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Increased SBE Turnover Thresholds from 1 July 2016
Note that the above percentage changes will benefit individuals expecting a < $1,000 offset under current
provisions (e.g. a family member beneficiary with other income sources as shown). For individuals expecting a
> $1,000 offset under current provisions, these percentage changes will have no effect due to capping.
"Clarification" of the Unincorporated SBE Offset’s application
Section 328-350 ITAA 1997 (the explanatory provision for the Subdiv 328-F ITAA 1997 offset) has been "clarified" in the
Bill through proposed changes to its wording.
Existing s 328-350(a) ITAA 1997 makes clear that a sole trader SBE could be eligible for an SBE offset (see Scenario A
below). However, pre-existing s 328-350(b) ITAA 1997 created doubt regarding an individual’s ability to claim an SBE
offset where they hold unincorporated SBE interests via an interposed entity (e.g. a partnership of discretionary trusts,
a unit trust business with discretionary trust unit holders etc. – see Scenario C below) because it required the
individual to include in their assessable income "a share of the net income of the unincorporated SBE". "Net income" is
traditionally relevant regarding a partner or beneficiary’s direct entitlements to trust or partnership income (e.g.
under ss.92 and 97 ITAA 1936) raising doubt that the indirect Scenario C below could result in an individual offset
under the current legislation.
The newly proposed s 328-350 ITAA 1997 provides as follows:

ss.328-350(a) is unchanged and it remains clear that a sole trader SBE could be eligible for the offset under this
subsection (see Scenario A below);

ss.328-350 (c) is a new addition to the section which provides SBE offset eligibility to an individual:
"whose assessable income includes an amount because you are a partner in a partnership or a beneficiary in a
trust that is a SBE" (i.e. the SBE trust or partnership with individual partners/beneficiaries at Scenario B below);
and

the remaining subsection (ss.328-350(b)) now refers to an eligible individual:
"whose assessable income includes a share of the net small business income of an unincorporated small business
entity".
While not free from doubt, barring rare scenarios where the unincorporated SBE is neither a trust nor a partnership
(e.g. an unincorporated association SBE), the effect of new s.328-350(b) ITAA 1997 is arguably redundant unless it is
intended to apply to Scenario C below (i.e. where an individual is entitled to a share of the net small business income
of the SBE trust or partnership via an intermediary entity such as a trust). Numerous comments in the Bill’s EM such as
"[the unincorporated SBE offset] ensures that there is minimal distortion between the choice of entity type that small
businesses could operate their business through" also suggest a flexible approach is intended.
Individual
Potentially Eligible
Individuals
potentially eligible for
Unincorporated SBE
offset
New s 328-350
Individual
Potentially Eligible
for SBE Offset
for SBE Offset
Individual
Potentially Eligible
for SBE Offset
< $5 Million SBE
Sole Trader
S 328-350(a)
ITAA 1997
C
Assessable on Share
of Net SBE Income
B
Assessable
Income as
Partner or
Beneficiary
A
?
< $5 Million
SBE
Partnership or
Trust
S 328-350(c)
ITAA 1997
Intermediary
Entity/ies
(e.g. Trust)
Share of Net SBE
Income
< $5 Million
SBE
Partnership
or Trust
S 328-350(b)
ITAA 1997
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
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SNAPSHOT
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provided for personal training purposes only
and are subject to the Copyright & Disclaimer
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Increased SBE Turnover Thresholds from 1 July 2016
WANT MORE DETAILS?
In addition to details available at www.taxastute.com.au, Tax Astute clients receive more information
and specific details, questions and answers underlying the brief snapshot summary above as a part of :
 their Tax Astute training session;
 their Tax Astute reference notes; and
 their detailed multimedia recording.
COPYRIGHT & DISCLAIMER
STATEMENT
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
This training material snapshot summary is subject to copyright and may not be reproduced, reused or
adapted in any manner, except in accordance with the Copyright Act 1968 (Cth) for bona fide study
purposes, other than with the express written consent of Tax Astute Pty Ltd (as Trustee for the Tax
Astute Trust).
This material has been prepared with the objective of maximising accuracy and currency, but is provided
for personal educational purposes only and must not be relied on as legal, financial or any other type of
advice. Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) hereby excludes any and all liability
arising, whether directly or indirectly, from the use of this training material snapshot summary and any
information contained herein.
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