If ever we needed a simplified tax system it would be right now. It appears every day we are bombarded with more legislation, changes and ammendments to make the Australian Taxation system simpler!
In the May 2006 budget, Federal treasurer, Peter Costello, announced some further changes to the 2001 Simplified Tax System, realising that it wasn’t as simple as was initially thought.
A recent survey would suggest that the Simplified Tax System was perhaps not simple enough as less than 4% of eligible businesses had opted for the Simplified Tax System. The changes announced in the Budget were further clarified on 6 September 2006, in an effort to simplify the Simplified Tax System. As a consequence businesses that previously didn’t qualify, are now eligible, and many businesses may find it advantageous to reconsider the options available.
Why chooses the Simplified Tax System Option?
The Simplified Tax System was introduced to minimise compliance issues for small businesses, applying cash accounting rules for deductions and income, with simpler rules for depreciation and stock.
Cash flow would be eased with a cash basis of accounting for Small to Medium Enterprises. What this means is that under cash accounting the GST collected on sales is only remitted when cash from the sale is actually received, rather than when it was invoiced.
Under the Simplified Tax System:
1) Purchases below $1000 qualify as expenses for that particular financial year, rather than being deemed as capital costs that were depreciated over a number of years.
2) No need for end of year stocktake (under certain circumstances)
New changes to the Simplified Tax System:
1) Businesses that choose the Simplified Tax System have the option of either cash or accrual based accounting
2) Increased net asset threshold from $5million to $6million for Capital Gains Tax Small Business Concessions
3) Businesses that decided to leave the Simplified Tax System were previously unable to return to the Simplified Tax System for five years, and this restriction has now been removed.
Who is eligible for the Simplified Tax System:
To qualify, your business must not turnover more than $2million. Fo full details, consult the ATO website, or speak to your Accountant / Registered Tax agent
Advantages of the Simplified Tax System for Small and Meduim Sized businesses:
1) You will not have to pay tax on the money you haven’t received yet. Previously you had to included debtors in assesible income
2) Assets acquired costing less than $1000 can be written off as expenses (rather than depreciated as capital items)
3) Assests costing more than $1000 are now depreciated at a rate of 18.75 per cent for the first year, then 37.5 per cent for remaining years. These assets are placed in a “low value pool†where each item is added to the pool, and depreciation calculated on total assets not each individual item
4) Under the Simplified Tax System, if your level of trading stock has not changed by an estimate of $5000, you will not be required to perform a stock take at year end
Disclaimer
The information in this article is in general terms only and should not be acted on in any way without consulting your accountant or registered tax agent. We accept no responsibility for any decisions taken as a result of this article. We are not tax agents or accountants.This article is a summary of our understanding of the Simplified Tax System as described on the Australian Taxation Office Website. See www.ato.gov.au
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