Understanding the Small Business $6 Million Asset Test
As a small business owner, you may have heard about the $6 million asset test, also known as the small business entity threshold (SBET). It’s a crucial consideration that determines whether your business qualifies for certain tax benefits and concessions.
In this article, we’ll dive deeper into the SBET and provide you with all the information you need to know to determine whether your business is eligible.
What is the $6 Million Asset Test?
The $6 million asset test is a threshold set by the Australian Taxation Office (ATO) to determine whether a business is classified as a small business entity (SBE) for tax purposes.
An SBE is a business with an aggregated turnover of less than $50 million and total assets of less than $6 million. This means that if your business has an aggregated turnover of less than $50 million and its total assets are less than $6 million, it qualifies as an SBE.
What are the benefits of being classified as an SBE?
There are many benefits of being classified as an SBE, including:
1. Simplified depreciation rules – SBEs can claim an immediate deduction for assets that cost less than $150,000.
2. Instant asset write-off – If you’re an SBE, you can claim an immediate deduction for assets that cost less than $150,000 in the year they are first used or installed.
3. Lower company tax rate – SBEs are subject to a lower company tax rate of 26% for the 2020-2021 financial year.
4. GST reporting concessions – If you’re an SBE, you can report and pay your GST quarterly instead of monthly.
5. Fringe benefits tax (FBT) exemptions – SBEs are eligible for FBT exemptions on certain benefits provided to employees.
How is the $6 million asset test calculated?
The $6 million asset test is calculated by adding together the value of all the assets of the business. This includes any assets that are used in the business, such as land, buildings, machinery, vehicles, and stock.
It’s important to note that some assets are excluded from this calculation. These include:
1. Assets held on trust
2. Assets leased to another entity
3. Personal assets of the business owner
4. Certain other assets that are excluded by law.
What if my assets exceed $6 million?
If your assets exceed $6 million, you are not eligible for the tax benefits and concessions available to SBEs. However, you may still be eligible for other tax benefits and concessions based on your turnover or other factors. It’s best to speak to your accountant or tax advisor for more information.
In conclusion, understanding the $6 million asset test is crucial for small business owners, as it determines whether your business qualifies for certain tax benefits and concessions. By calculating your total assets and ensuring they are less than $6 million, you can take advantage of the many benefits available to SBEs, including simplified depreciation rules, instant asset write-off, lower company tax rate, GST reporting concessions, and FBT exemptions.
