Small business tax offset
- February 10, 2023
- 10 min read
Are you a sole trader or in a partnership? We’ve got some good news for you!
You may be eligible for the small business tax offset.
This could mean up to an extra $1,000 in your pocket come tax time (depending on eligibility and circumstances).
Come with us to explore what this can mean for you and your business.
Overview:
- What is the small business tax offset?
- Who is eligible for small business tax relief
- How is the small business tax offset calculated?
- How to claim small business tax offset
- FAQS
What is the small business tax offset?
The small business tax offset (also known as the unincorporated small business tax offset or USBTO) is a tax benefit designed to provide relief for small business owners by reducing the amount of income tax they have to pay on their business income.
The tax offset is available to individuals in Australia who run a small business as a sole trader or partnership.
If you’re running a Pty Ltd company you’re not eligible for the small business tax offset. But don’t worry, your tax rate has already been cut from 30% to 25% from the financial year 2021-22 and onwards!
Who is eligible for small business tax relief
Firstly, you need to find out if you are eligible for the tax offset.
Use our checklist to see if you are eligible for the small business tax offset –
✔ Are you an individual who runs a small business as a sole trader or partnership?
✔ Do you have a total income of less than $5 million?
✔ Are you an Australian resident for tax purposes?
✔ Have you carried on a business in the relevant income year?
If you’ve ticked all these questions, continue to read on to see how much your tax offset could be.
How is the small business tax offset calculated?
The offset is calculated based on the individual’s business income and the tax rate for that income.
It is based on a fixed percentage of your business income, which will vary depending on the amount of income you have earned and the financial year.
Go to the relevant financial year to find out the percentage –
For the 2021-2022 financial year, the small business tax offset is:
8% for individuals with business income up to $37,000
5% for individuals with business income between $37,001 and $90,000
3% for individuals with business income between $90,001 and $126,000
For the 2022-2023 financial year, the small business tax offset is:
8% for individuals with business income up to $37,000
5% for individuals with business income between $37,001 and $90,000
3% for individuals with business income between $90,001 and $120,000
For the 2023-2024 financial year, the small business tax offset is:
8% for individuals with business income up to $37,000
5% for individuals with business income between $37,001 and $90,000
The offset is capped at $1,000 per year.
Therefore, even if the individual’s business income is above the cap of $126,000 for the 2021-2022 financial year, the maximum offset they will receive is $1,000.
How to claim small business tax offset
Excited? Let’s look at how you can claim the small business tax offset.
You will need to report your business income and expenses in the business section on your income tax return form.
If eligible, the ATO will automatically calculate your small business tax offset amount based on the information you have included.
Your small business tax offset (up to a cap of $1,000) will be recorded on your notice of assessment provided by the ATO upon finalisation of your tax return.
Your refund, if applicable, will be paid to your nominated bank account #winning.
Don’t forget to keep all your business income and expenses records, in case the ATO wants to verify the claim later.
Think you may be eligible for the small business tax offset? We’ll help you submit your income tax return to the ATO, so you can get your offset, quick smart! Don’t wait, call our team now on +61 4 9100 9480 or make an appointment with a Sleek accountant here.
FAQS
How is the small business tax offset calculated?
The offset is calculated based on the individual’s business income and the tax rate for that income, to a cap of $1,000.
It is based on a fixed percentage of your business income, which will vary depending on the amount of income you have earned and the financial year.
See above for the relevant percentages per financial year.
Are sole traders eligible for the small business tax offset?
Yes, sole traders are generally eligible for the small business tax offset in Australia.
To qualify for the offset, your business must have a total income of less than $5 million, you must be an Australian resident for tax purposes and have carried on a business in the relevant income year.
Can small business losses offset personal income?
In Australia, small business losses can offset personal income for individuals who run a small business as a sole trader or partnership.
The losses incurred in the current year or previous year can be used to reduce the taxable income of the individual. This is called a “loss carry forward”
This means that if a small business incurs a loss in one year, the individual can use that loss to offset their taxable income in future years and thus reducing their income tax liability.
