Simplified Tax System

The Simplified Tax System (STS) is an alternative method to determine taxable income for eligible small businesses with straightforward financial affairs. Participating in STS is optional.

The key features of STS are:

• Cash accountingrather than accruals accounting:
• Most business income and deductions will be recognised only when they are received and paid.

A simplified depreciation system (capital allowances): 

• Depreciating assets that cost less than $1000 each will be written off immediately and claimed as a deduction in the year in whichyou started using the asset or installed it ready for use, for a taxable purpose.
• Other depreciating assets which have an effective life of less than 25 years will be pooled and depreciated at the diminishing value rate of 30%.
• Depreciating assets with an effective life of 25 years or more will be pooled and depreciated at the diminishing value rate of 5%.

Simplified treatment of trading stock:

• Tax payers will only be required to account for changes in their trading stock on hand or do stock takes at the end of the year where the difference between the value of opening stock and your reasonable estimate of closing stock exceeds $5000.

To qualify for STS in an income year you must meet all these requirements:

• Be carrying on a business in that year
• Have an STS average turnoverfor that year of less than $1m
• Have the total of the adjustable values of the depreciating assets held by you and your grouped entities at the end of that yearas less than $3m.

FURTHER INFORMATION: See the Simplified Tax System section at the ATO website for more information.

IMPORTANT DISCLAIMER: This article is published as a guide to clients and for their private information. This article does not constitute advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.