Effective as of the 2007 – 08 income year the simplified tax system (STS) will no longer be operational. The current system is to be replaced by the small business entity provisions.

A small business entity is an entity that carries on a business with an aggregated turnover of less than $2 million. Aggregated turnover consists of the core business’ annual turnover in addition to the annual turnover of any businesses that are connected to or affiliated with that core business.

For small business entities the new provisions not only allow them to choose from a wider range of concessions, but it provides the option to for businesses to elect only those concessions that suit their needs. The change also introduces the fact that it is no longer necessary to inform the ATO of your eligibility or choice to make use of the concessions that are on offer.

Even if you have previously voluntarily left the outgoing STS you can still access the concessions under the new small business entity provisions. The five-year re-entry restriction that applied in the STS is not longer in effect with the simpler depreciation rules being the only exception. If you have exited the STS for the 2005-06 or 2006-07 income years then you must still wait until five years after the year that you left to make use of the simpler depreciation rules.

If a small business answers yes to all of the following 3 questions it can continue using the current STS accounting method until such time that is not longer a small business entity or simply chooses to not use the method anymore. The 3 questions are:

• Was the business in the STS in 2006-07?
• Was the business using the STS accounting method continuously since before 1 July 2005?
• Is the business a small business entity from 2007-08?

Upon ceasing use of the STS accounting method any income and expenses that have not been accounted for by the business, because they have not been received or paid, will then be accounted for in the year that the accounting method is changed.

The former STS pools will continue to exist and will function in much the same way as they did under the STS with the most prominent change being that they will now be referred to as the ‘general small business pool’ and the ‘long life small business pool’.

When choosing to use the simpler depreciation rules any new depreciating assets will continue to be added to the relevant pool.

If the simpler depreciation rule is not being used, although the pools continue to operate, new assets cannot be added to them. Any newly purchased depreciating assets will be accounted for under the uniform capital allowances rules. The immediate deduction for low cost assets is limited to assets which cost $100 or less.

As mentioned previously, it is important to keep in mind that if a business is to stop using the simpler depreciation rules they must wait the designated five-year period before choosing to use it again.

Under the uniform capital allowance system, roll-over relief is available to those who opt to utilise the simpler depreciation rules.