The small business entity concessions under the ITAA 1997 are among the most frequently misapplied provisions in Australian tax practice. The eligibility test is straightforward in isolation — aggregated turnover under $10 million — but the aggregation rules in s.328-115 draw in connected entities and affiliates in ways that defeat the apparent eligibility of many clients. Before advising any client that they can access simplified depreciation, prepayment deductions, or GST cash accounting, verify that the aggregated turnover calculation has been performed correctly.
The Aggregated Turnover Test
The SBE threshold for most concessions is aggregated turnover of less than $10 million in either the current or the previous income year (s.328-110 ITAA 1997). Aggregated turnover includes: the entity's annual turnover, plus the annual turnover of any entity connected with it, plus the annual turnover of any affiliate.
Connected entities are defined in s.328-125: two entities are connected where one controls the other (directly or indirectly, 40% or more of voting power or economic entitlement), or both are controlled by a third entity. Affiliates under s.328-130 include individuals or companies who act, or could reasonably be expected to act, in accordance with the primary entity's directions or wishes.
A sole trader bookkeeper running $5M in fees who has a 50% interest in a separate $7M pest control company does not satisfy the SBE test. The connected entity's turnover is added, producing $12M in aggregated turnover. This is a common planning error. The bookkeeper's obligation is to request details of all related entities and apply the aggregation rules before confirming SBE status.
Simplified Depreciation and the Instant Asset Write-Off
Under Division 328-D of ITAA 1997, SBEs use simplified depreciation rules. Assets costing less than the applicable threshold are immediately deducted in the year of first use or installation ready for use. Assets at or above the threshold are allocated to a single general small business pool depreciated at 30% (15% in the first year of allocation).
The immediate write-off threshold has changed multiple times in recent years. The threshold returned to $20,000 following the expiry of the temporary full expensing provisions (which allowed 100% deductions on all eligible depreciating assets) that applied for income years ending 30 June 2020 through 30 June 2023. As of the 2025–26 income year, the threshold is $20,000. Always confirm the applicable threshold for the specific income year — do not carry forward a threshold from a prior year without verification.
A bookkeeper managing an SBE client who acquires a $19,500 asset should code it as an immediate deduction rather than capitalising it to the asset register. Where the client has multiple assets each below $20,000, each is individually tested — the concession applies per asset, not in aggregate. The pool rate of 15% in the first year applies only to assets that exceed the threshold; there is no partial deduction for assets below it.
Prepayment Deductions
Non-SBE taxpayers must apply the prepayment rules in s.82KZM of ITAA 1936: expenditure under a prepaid service arrangement must be apportioned across the period to which it relates. SBEs are exempt from this — under the exception in s.82KZL, an SBE can immediately deduct a prepaid expense where the eligible service period does not extend more than 12 months after the payment date.
The practical significance: a $24,000 annual software subscription prepaid in May can be fully deducted in the current financial year for an SBE, because the service period ends in May the following year (12 months from the date of the prepayment). A non-SBE would deduct $4,000 in the current year (two months) and $20,000 in the following year.
The 12-month rule is measured from the date of the payment, not from the start of the service period. A subscription paid on 1 May for a period running 1 June to 31 May is within 12 months of the payment date; a subscription paid on 1 May for a period running 1 July to 30 June the following year extends to 14 months from payment and the full immediate deduction is not available even for an SBE.
GST Cash Accounting
SBEs can elect to account for GST on a cash basis under s.29-40 of the GST Act. Under cash basis, GST is included in the BAS for the period in which the consideration (cash) is received or paid, rather than the period in which the invoice is issued.
Cash basis accounting is particularly advantageous for businesses with extended debtor days — a business invoicing in March and collecting in June reports GST in June rather than March. This defers the GST liability without changing the ultimate amount payable. It also means ITCs are claimed when the supplier is paid, not when the invoice is received — businesses with prompt payment of suppliers and slow collection from customers benefit more from accruals for ITCs.
The election must be made before the first tax period to which it applies and is generally irrevocable without ATO approval unless circumstances change materially. Bookkeepers onboarding a new SBE client should confirm whether a cash basis election is in effect and reflect it in the accounting software GST settings.
SBE CGT Concessions
SBEs may access four CGT concessions on the disposal of active assets: the 15-year exemption (s.152-B), the 50% active asset reduction (s.152-C), the retirement exemption (s.152-D), and the small business rollover (s.152-E). The basic eligibility conditions require the entity to satisfy the SBE threshold (or the alternative $6M net asset test), the asset to be an active asset used in the business, and in some cases a minimum ownership period.
The 15-year exemption fully exempts the capital gain where the asset has been continuously owned for at least 15 years and the taxpayer is aged 55 or over and retiring. This is a complete exemption — not a discount. It interacts with Division 7A where the sale proceeds are retained in a company: leaving the proceeds in the company does not trigger a dividend automatically, but if the proceeds are subsequently lent to a shareholder, Division 7A will apply to the loan.
The retirement exemption has a lifetime limit of $500,000. Where the taxpayer is under 55, the exempt amount must be paid into a complying superannuation fund (or retirement savings account). Where the taxpayer is 55 or over, payment to super is not required. The bookkeeper's role is to ensure the election under s.152-D is made in the year the gain arises and that the superannuation contribution is made within the required timeframe.