Tax & ATO
What is Small business entity?
Small business, for tax purposes
For tax purposes you are a small business entity in an income year if you carry on a business and your aggregated turnover is under $10 million. Several concessions use their own lower figure: $5 million for the small business income tax offset and $2 million for the CGT concessions.
There is no single definition of a small business
Australia has several, and they disagree. The tax definition turns on two things: you have to be carrying on a business, and your aggregated turnover has to be under the relevant threshold. Fair Work uses a completely different test for the Small Business Fair Dismissal Code, counting employees rather than revenue. The Australian Bureau of Statistics uses employee counts too. A business can be small for one purpose and not for another, which is why "am I a small business" has no useful answer until you say what for.
Within the tax definition itself the threshold moves by concession. $10 million covers most income tax concessions and the ability to account for GST on a cash basis. The small business income tax offset uses $5 million. The small business CGT concessions keep a $2 million threshold, with an alternative $6 million maximum net asset value test for those who fail the turnover test.
Working out whether you qualify this year
You can satisfy the turnover test in any of three ways for a given income year: the previous year's aggregated turnover was under the threshold, a reasonable estimate of the current year is under it, or the actual figure at the end of the year turns out to be under it. Meeting one is enough. The ATO's guidance is that most businesses only need the previous-year test, which has the practical advantage of being knowable before the year begins rather than after it ends.
The figure to test is the aggregated one, not your own revenue. That means adding the turnover of every entity connected with you and every affiliate, then removing the dealings between you. A business well under a threshold on its own accounts can be over it once a second company or a trust under the same control is counted.
What being a small business entity gets you
The concessions are worth real money and they are easy to miss. Simplified depreciation rules let eligible assets be written off under the small business pool rather than tracked individually. GST can be accounted for on a cash basis, so GST on a sale is only payable once the customer actually pays, which is the single most useful cash-flow concession for a business with slow payers. Prepaid expenses can be deducted immediately rather than apportioned. PAYG instalments can be worked out on the ATO's GDP-adjusted notional tax rather than on your own estimate.
The largest one arrives at the end. The small business CGT concessions can reduce or eliminate the capital gain on selling a business, and they are tested on a $2 million aggregated turnover threshold rather than $10 million. Because that test looks at the year of the sale, a structure built without it in mind can quietly disqualify the owner from the concession a decade before it is needed. That is a conversation for a registered tax agent rather than a glossary.
Free tools for Small business entity and beyond
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Small business entity frequently asked questions
What counts as a small business in Australia for tax?
Carrying on a business with an aggregated turnover under $10 million, for most income tax concessions. Two concessions use lower figures: $5 million for the small business income tax offset and $2 million for the CGT concessions. Fair Work and the Australian Bureau of Statistics define a small business by employee numbers instead, so the answer depends entirely on what you are asking for.
Do I lose the concessions the year I go over the threshold?
Not necessarily in that year, because the test can be satisfied on the previous year's aggregated turnover. Crossing a threshold during a year does not retrospectively remove eligibility that the previous-year test already established. It does affect the following year, so the crossing is worth planning for rather than discovering at lodgement.
Is the GST registration threshold the same as the small business threshold?
No, and they are measured differently. GST registration is compulsory once your own GST turnover reaches $75,000 in any rolling 12-month period, with no aggregation of connected entities. The small business entity thresholds are about concessions rather than obligations and are tested on aggregated turnover across the whole group.
Last reviewed and updated: by Bishal Shrestha