Small Business Entity Framework
The $10 million aggregated turnover test, connected entity and affiliate grouping rules, the three threshold bands ($2M, $5M, $10M), concessions available at each level, and how structure choices affect eligibility.
A small business entity under Division 328 is any individual, company, partnership, or trust that carries on a business with aggregated turnover under $10 million. Most concessions (simplified depreciation, trading stock, prepaid expenses, PAYG instalments) sit at this threshold, but CGT small business concessions under Division 152 use a lower $2 million turnover test (or the $6 million maximum net asset value test), and the small business income tax offset uses a $5 million threshold. Aggregated turnover includes the turnover of connected entities and affiliates, so the test is group-wide.
Last reviewed:
Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →
Core SBE definition: Division 328
A small business entity is an individual, company, partnership, or trust that carries on a business and has aggregated turnover under $10 million for the relevant year. This definition gates access to the main suite of SBE concessions. Most concessions use the $10 million threshold, but some critical concessions sit at $2 million or $5 million.
Aggregated turnover: connected entities and affiliates
Aggregated turnover is the sum of your annual turnover, the turnover of connected entities, and the turnover of affiliates, minus excluded intra-group dealings. The connected entity test uses 40% control (measured by dividend rights, capital distribution rights, or voting power for companies, and income or capital distribution rights for trusts). The affiliate test applies where an individual or company carries on a business and acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you.
Connected entity test (s 328-125)
For companies: 40% or more of dividend rights, capital distribution rights, or voting power. For non-discretionary trusts: 40% or more of income or capital distribution rights. For discretionary trusts: who the trustee usually acts in favour of, plus pattern-of-distribution analysis. Control can be direct or through intermediaries.
Affiliate test (s 328-130)
Only individuals and companies can be affiliates (not trusts or partnerships themselves, though their controllers can be). Normal commercial dealing at arm's length does not by itself make someone an affiliate. This is a factual test layered over the more mechanical connected entity rules.
Three threshold bands and what each unlocks
The SBE framework operates across three main bands, each gating access to different concessions. Understanding which band you fall into determines which concessions are available.
Simplified depreciation: election and pooling
Under Subdivision 328-D, an SBE can choose to apply simplified depreciation rules. Assets costing less than the instant write-off threshold ($20,000 for 2025-26) are immediately deducted. Assets costing $20,000 or more go into the small business pool, depreciated at 15% in the first year and 30% declining balance thereafter. If the pool balance falls below $20,000 at year-end, the entire pool can be written off.
Election mechanics
The election is made by using the simplified depreciation rules in your tax return, not via a separate form. Once you start using the SBE pool, you are treated as having elected in. You must apply the rules to all eligible depreciating assets. If you cease to be an SBE or choose to stop, transitional balancing adjustments and pool write-off consequences apply, and you revert to standard Division 40 depreciation.
Division 152 CGT concessions: the $2 million gateway
The four CGT small business concessions are the most valuable tax concessions available to Australian SME owners. Access requires either the $2 million SBE turnover test or the $6 million net asset value test, plus active-asset requirements and other specific conditions.
How business structure affects SBE eligibility
All four structures (sole traders, partnerships, companies, and trusts) can access the general SBE concessions under Division 328 and the CGT concessions under Division 152. However, the small business income tax offset is only available to individuals (directly as sole traders, or indirectly through partnership distributions or trust distributions). Companies pay the company tax rate and do not receive the offset.
Worked example: family group aggregation
Tran runs a landscaping business in Cairns as a sole trader ($1.8 million turnover). His wife Linh operates a garden supplies company ($900,000 turnover). Tran holds 50% of the shares in Linh's company.
Statute references
- ITAA 1997 Division 328 (SBE definition and concessions framework)
- ITAA 1997 s 328-110 to s 328-120 (aggregated turnover definition and calculation)
- ITAA 1997 s 328-125 (connected entity test: 40% control)
- ITAA 1997 s 328-130 (affiliate test: acting in concert)
- ITAA 1997 Subdivision 328-D (simplified depreciation)
- ITAA 1997 Division 152 (CGT small business concessions)
- ITAA 1997 s 328-375 (small business income tax offset)
Frequently asked questions
What does aggregated turnover actually include?+
How does the 40% connected entity test work?+
Can my company access the small business income tax offset?+
Do I have to use simplified depreciation for all assets if I elect in?+
Last reviewed: