Work out if you’re a small business for the income tax year

There are 3 methods to work out if you are a small business for the current income year.

If you satisfy any of these methods, you are a small business entity:

• Method 1 – Use your previous year’s turnover – most businesses find this the easiest
• Method 2 – Estimate your current year turnover
• Method 3 – Use your actual current year turnover

You must use the same method for any connected or affiliated business and keep records of how you worked out your turnover.

You need to be aware that:

• some exceptions and limitations apply if you use Methods 2 or 3
• even if you are a small business for the current income year, you might not be eligible for all the small business concessions
• even if you aren’t a small business because your turnover – using one of the 3 methods – is at least $10 million, you might be eligible for certain small business concessions.

See also:

• If you’re winding up a business
• If you’re not a small business in an income year
• FBT exemption for work-related devices
• Aggregation

Method 1 – Use your previous year’s turnover

You are a small business for the current income year if your previous year’s turnover is less than $10 million.

If you are completing a tax return for 2015–16 or an earlier income year, your previous year’s turnover must be less than $2 million.

Method 2 – Estimate your current year turnover

You are a small business for the current income year if your estimated turnover is less than $10 million. You can only use this method if your turnover was less than $10 million for one of the last two income years.

You must work out whether your turnover is likely to be less than $10 million, based on the conditions you know about at the beginning of the income year. If you are starting a business, base your estimated turnover on the conditions you know about at the time you start your business.

Factors to consider when estimating your turnover include:

• your turnover in previous income years
• whether you plan to reduce or increase staff in the current income year
• whether your business operating hours will increase or decrease
• whether previous extraordinary sales or product lines will be available in the current income year
• whether your business will face increased competition in the current income year
• whether your business activity will increase or decrease because of changing conditions.

2015–16 and earlier income years

If you are completing a tax return for 2015–16 or an earlier income year, and you’re using this method, your estimated turnover for that year, as well as one of the two previous income years, must be less than $2 million.

Method 3 – Use your actual current income year turnover

If your actual turnover at the end of the current year is less than $10 million, you are a small business for the current income year.

If you are completing a tax return for 2015–16 or an earlier income year, and you’re using this method, your estimated turnover for that year must be less than $2 million.

You cannot determine your eligibility for the goods and services tax (GST), pay as you go (PAYG) instalments and excise concessions using your actual current income year turnover. This is because you must choose these concessions earlier in the income year.

If you’re winding up a business

In a year when you are winding up a business, you will be taken to be still running the business and have access to these concessions if both of the following apply:

• you are winding up a business you previously carried on
• you were a small business in the income year you ceased business.

If you’re not a small business in an income year

If you are not a small business entity in an income year, you may still be able to access the:

• capital gains tax (CGT) concessions – if you pass the $6 million maximum net asset value test
• fringe benefits tax (FBT) car parking exemption – if in the income year ending just before the start of the relevant FBT year your gross total income was less than $10 million
• superannuation clearing house – if you have 19 or fewer employees
• lower company tax rate – if you are a base rate entity with a turnover less than $25 million for the 2017–18 income year (increased to $50 million from 2018–19), and 80% or less of your assessable income is base rate entity passive income.

If you are not a small business entity in an income year – because your turnover is $10 million or more but less than $50 million using one of the 3 methods – you may:

• from 1 July 2020 be able to access an immediate deduction for certain start-up expenses and for prepaid expenditure
• from 1 July 2021 also be eligible to access the following small business concessions
  • simplified trading stock rules
  • PAYG instalments concession
  • a two-year amendment period
  • excise concession.

FBT exemption for multiple work-related devices

You are a small business for the FBT work-related portable electronic device exemption if you are a small business for an income year that ends or starts in the relevant FBT year. From 1 April 2021, the turnover threshold for determining if you can access this exemption increases to $50 million for the relevant income year.