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Small business income tax offset from 1 July 2015

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Are you a small business owner? If yes, we have some good news for you! From the 2015-2016 financial year, the ATO is reducing the tax payable of small businesses by up to $1,000 each year. This is called the small business income tax offset which is basically offered to benefit and help small businesses by reducing their tax payable amount.

To avail the small business income tax offset, you must be either –

  • A sole trader i.e. a small business entity, or
  • You have a share of net small business income from a partnership or a trust.

In the latter case, that partnership or trust must be a small business entity. If a business entity has an aggregated turnover of no more than $2 million, it is considered as a small business entity.

The small business tax offset is determined based on your net small business income or share of net small business income from partnership or trust shown on your income tax return. It is calculated as 5% of the ratio of net income & taxable income multiplied by basic income tax liability. The formula is shown below:

Small Business Income Tax Offset

= 5% ×{(Net Small Business Income/Taxable Income) ×Basic Income Tax Liability

However, there is a limit for small business income tax offset. You can claim a maximum of $1000 for tax offset in an income year.

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