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Discussion Questions
1) Issue:
Whether Herbie is a small business entity for the purposes of the ITAA 1997, and why?
Rule:
In order to determine, whether Herbie is a Small Business Entity (SBE) for the Income Year 2019, it is imperative to refer to the provisions of Income Tax Assessment Act, 1977 (ITAA). Section 328-110 of the ITAA defines the meaning of SBE which states that any individual, company, partnership or trust shall be treated as SBE if it is carrying a business in the current year and its aggregate turnover in the previous year is less than $10 million or its turnover in the current year is likely to be less than $10 million. Aggregate turnover as defined in Sec 328-115 is the total annual turnover of entity itself along with the turnover of the related / connected entities (Income Tax Assessment Act 1997). This threshold was earlier $2 million which was enhanced to $10 million from 1st July, 2016.
Application
As provided in the facts of the case, Herbie is carrying out a sole trader business and his aggregated turnover for the income year 2019 is $11.6 which is more than the prescribed threshold for SBE. However, turnover of the previous year (2018) is $1.1 million only i.e. less than $10 million. Therefore, any one of the condition required to be satisfied for claiming the status of SBE is met in the instant case.
Conclusion
Since the prescribed threshold limit of turnover in the previous year 2018 is less than $10 million, Herbie is qualified to be treated as SBE for income year 2019.
2) Issue:
If he is a small business entity, discuss in detail what concessions are available to him?
Rule
Being a SBE, he shall be entitled to claim multiple concessions as given in ITAA. As enumerated in Sec 328-10, SBE is entitled for below concessions on fulfilment of certain additional conditions-
· Income Tax Concession
· Immediate deductions for start-up expenses
· Restructure of small businesses
· Simplified depreciation rules
· Simplified trading stock rules
· Deduction of certain prepaid expenses immediately
· Certain CGT benefits and exemptions such as
· 15-year asset exemption,
· 50% active asset reduction,
· CGT Roll-over, etc.
· GST Concessions
· accounting for GST on cash basis
· paying GST by quarterly instalments, etc
· PAYG instalments on GDP-adjusted notional tax
· FBT car parking exemptions, etc.
(Source: Income Tax Assessment Act 1997).
Application
As concluded in previous issue, Herbie is a SBE for the previous year 2019. Therefore, he would be eligible for the above listed concessions / exemptions.
Conclusion
Herbie is eligible to take benefits of the above listed exemptions which would reduce his personal income tax liability substantially for the income year 2019.
3) Issue
Whether he is able to immediately write off each of the new Beetles recently purchased?
Rule
As mentioned above, one of the most lucrative and important concessions available to SBE is in the form of deduction of capital allowances, where they are allowed to immediately write-off the asset cost in the year, it was acquired or asset installed for use in the business. The Australian government has increased the threshold of $ 1,000 for Instant Asset Write off (IAWO) wherein cost incurred for the acquisition of assets is allowed as deduction in the year of acquisition itself. Initially the above benefit was brought in the year 2015 for limited time period for the assets acquired within the specified time. However, it has been gradually extended with the gradual increase in the threshold also (New instant asset write-off, 2019). Summary of the IAWO provisions which are applicable for income year 2019 is as below-
    Date & Time for asset acquired and first use or installed
    Assets Cost below
    Turnover limit
    1st July 2018 to 28th January 2019
    $20,000
    Less than $10 million
    29th January 2019 to 2nd April 2019 (7:29pm)
    $25,000
    Less than $10 million
    From 7:30pm on 2nd April to 30th June 2019
    $30,000
    Less than $50 million
(Source: The Tax Institute, 2019)
Thus, for the income year 2019, there are three thresholds of asset cost for claiming instant write off depending upon the time of asset purchased or first use / installed for business purpose. It is to be noted that as per Sec 40-82 of the ITAA, instant write-off for assets cost below $30,000 can be claimed for assets acquired during 2nd April 2019 (7:30pm) to 30th June 2020 by the entity having medium-sized business with turnover threshold of $50 million (The Tax Institute, 2019).
Application
Applying the above provisions in the instant case, Herbie shall be entitled to write off immediately the yellow VW beetle which he has purchased on 6th June 2019 for $29,000 as it is within the threshold of asset cost as well as the criteria of turnover limit of less than $50 million is also satisfied. For the red and blue VW beetles, although they...