Small businesses deductions and concessions

The ATO has flagged a number of risks that attract its attention when small businesses incorrectly claim deductions and concessions.

Non-commercial losses

The ATO is focusing on individuals who incorrectly claim and offset business losses against other income sources. To offset losses from a business activity against other sources of income the taxpayer normally needs to pass a $250,000 adjusted income test and the business needs to pass one of the four commerciality tests.

In particular, the ATO has seen the following errors:

• offsetting losses from hobby or other non-business like activities
• problems applying the rules for offsetting losses when taxable income for non-commercial loss purposes (excluding the business losses) is greater than $250,000
• issues with the rules for offsetting losses when failing to pass any of the 4 eligibility tests
• failing to apply for the Commissioner's discretion to allow the claim or not applying PCG 2022/1 in good faith

Small business boost measures

The ATO has also flagged that it has seen small businesses incorrectly claiming the small business skills and training boost and small business technology investment boost, due to errors or misunderstanding the law. Clients should ensure all the eligibility criteria are met before claiming the additional deductions.

For the skills and training boost, the ATO has seen the following common errors:

• claiming when you are not in business, or your aggregated turnover is over $50 million
• claiming for training where the person is not an employee of your business
• sole traders claiming the boost deduction for expenditure on training for themselves
• claiming more than the additional 20% deduction for eligible employee training expenditure
• claiming when training is not provided by a registered training provider.
  
  

For the technology investment boost, the ATO has seen the following common errors:

• expenses not meeting the definition of eligible digital expenditure
• exceeding the annual turnover threshold requirement
• claims exceeding the cap on expenditure
• claims by businesses with no reported depreciating assets
• incorrectly claiming over multiple years.

Small business capital gains tax concession (SBCGT) risks

The ATO continues to focus on small businesses that incorrectly apply the SBCGT concessions.

Sole traders or individuals who are partners in a partnership report the SBCGT concessions in the supplementary section for individuals in their tax return. Companies or trusts should report the concessions in the CGT schedule.

Common errors the ATO has seen include:

• misunderstanding the eligibility requirements:
• whether they are carrying on a business (not a hobby or personal asset)
• whether the aggregated turnover exceeds $2 million, and the business assets are under $6 million (including those of connected entities and affiliates)
• the age of the taxpayer and the impact this has on specific concessions
  
• incorrect reporting or application of correct concession codes
  
• miscalculation by using the wrong dates when buying or selling an asset or applying a discount incorrectly
  
• inappropriate use of the CGT rollover relief or CGT discount

More information

• Non-commercial business loss risks
  
• Small business boost measures risks
  
• Small business capital gains tax concession risks
  
  

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