As an Australian sole trader or small business owner, you’ve probably heard about the small business tax offset. However, knowing what you and your small business are entitled to under this offset can be challenging. We will show you some of the basics in this article.
What is the small business tax offset for sole traders and individuals?
Who is eligible for the small business tax offset?
How to calculate small business tax offset?
Up to a maximum of $1000, you calculate the offset using the following formula:
For instance, let’s say that you are a sole trader and operate a single small business entity in the primary production sector, from which your net income is $50,000. Let’s assume that you don’t have any farm management deposits and repayments or any foreign income. However, you have $5000 in other business deductions, after which your net small business income will be $45,000.
Based on this, you might work out your taxable income for the year to be $13,500. So, you would divide $45,000 (your total net small business income) by $13,500 (your taxable income), which would give you 3.33.
You would then multiply this by your basic income tax liability for the income year. Let’s say that’s $100, so 3.33 x $100 is $330.
Thus, you are likely to receive around $330 under the Australian small business tax offset. Remember, the maximum that you can receive under the offset is $1000, meaning that even if the result of your calculation exceeds this amount, the ATO will cap your offset at this amount.
How do you apply for the small business tax offset?
If you complete your tax return yourself using myTax, you will use the small business income tax calculator. Whilst this doesn’t work out the amount you are eligible to receive under the tax offset for you, it will tell you where to include it in your tax return.
We hope that this guide helps your business to take advantage of the Australian small business tax offset. However, we know it can be tricky, especially if this is your first time claiming. If you would like assistance with calculating how much your small business can receive under the offset, or if you need professional help setting up a company, trust, or self-managed super fund, look no further and contact TMS Financial. TMS Financial has a team of accounting and finance professionals to assist with your accounting needs. Find out how by calling (02) 9725 6169.
If you’re interested in learning about the benefits of owning an Australian investment property as a long-term investment and the potential tax deductions that Australian taxpayers can claim for rental property, then you’re in the right place.
We have provided this document as a fundamental guide that is intended to assist people in improving their understanding of the tax laws and how they operate. When considering what actions to take, however, more factors should be considered.
This is not intended to be a comprehensive document that can be taken as tax advice, financial advice, or any other kind of advice. The content does not consider any of your circumstances and is only generic in nature.
This document is not to be taken as advice under any circumstances. If you consider acting based on anything written in this document, we suggest you seek professional advice first.
If you have any questions, you can contact TMS Tax Accounting and Financial Services by phone 02 9725 6169 by email at firstname.lastname@example.org.
We will not accept liability for anyone relying on the contents of this document.