Australian Tax - Knowing Whether You Have a Small Business Gives Tax Savings
If you can be a small business under the Australian tax law definition, there are quite a few nice tax concessions that you can get. But are you in or are you out? Are you small or not?
Australian enterprise owners generally know the $2 million annual turnover threshold. This is the general test that is in the tax law for whether an undertaking is small or not. However, as with all things tax, it's not quite as straight forward as just saying that you have a $2 million turnover and therefore your are a small business. It is more complex than that. This is shown in a recent Australian Taxation Office ("ATO") ruling (in this case called an ATO Interpretative Decision) that relates to this issue.
Here's the facts.
A person has conducted two commercial undertakings for a number of years. One activity ("the large one") has a turnover well in excess of $2 million and the other activity has a turnover under $2 million. The person decides to sell the large one. This happens early in one financial year. Of course, once this happens, the turnover for the year falls below $2 million.
One of the concessions enterprise owners can get is the small business capital gains tax concessions when a commercial operation is sold. These are really good, as you can often pay no tax. Guess what? The person that sold the large one wanted to say that he had a small business for the year in which the large one was sold so that he/she could pay no tax on the sale of the large one. After all, didn't he/she have a business with a turnover of less than $2 million in that year?
No such luck.
When a commercial operation is carried on for part of a year, there is a provision in the Australian tax law that deems the turnover of the business to be what it would have been if it had been carried on for the whole of the year. As the ATO says in the ruling - the intent of the provision is to ensure the true size of an operation is taken into account in determining whether the $2 million turnover requirement is satisfied. And, just because another undertaking is continued does not mean that this provision does not apply to the one that has been stopped.
Conclusion
There can be a good deal more to the $2 million test. If it's important, make sure that you get someone to advise you that knows and reads the law, rather than just someone who has a layman's knowledge.
Wishing you easier business.
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