It is always beneficial to claim potential income deductions and concessions. The Small Business Income Tax Offset is such a benefit for small business owners in Australia. It helps you reduce the tax amount you pay on your business income when you have to lodge your tax return. If you are unfamiliar with tax matters, it would be best to choose one of the best accounting firms in Melbourne. With the rising cost of living, it has become crucial to claim possible deductions and concessions to save more on taxes.
Small Business Income Tax Offset: What is It?
The Small Business Income Tax Offset is a tax benefit that can be used by all eligible small businesses in Australia. This tax benefit was introduced by the government to support small businesses. The offset offers a percentage reduction in the payable income tax on business profits. It is calculated depending on net small business income and applies to partnerships, sole traders, and individuals with small business income from a trust. Small Business Income Tax Offset allows eligible business owners to claim a tax offset of up to $1,000. It is helpful for those who want to free up more cash flow.
Who can Apply for Small Business Income Tax Offset?
To claim small business income tax offset, you must be running a business as a sole trader or must have a share of net small business income from a trust or partnership. The small business must have a total turnover of less than $5 million for the 2016-17 income year onwards.
Your business needs to function as a sole trader, partnership, or trust with small business net income. Incorporated entities, such as companies, do not qualify for this specific offset, but they might benefit from other tax incentives. If you’re unsure, consult a tax professional to ensure your business structure and operations comply with the ATO’s definitions for qualifying for the SBITO.
Another essential criterion is that your business needs to be operational during the entire financial year. Income from passive sources, such as investments or rental properties, will not make you eligible for the offset. Generally, it’s important to maintain precise financial records and meet all applicable tax obligations to substantiate your eligibility for the offset and other potential tax advantages. For accurate record-keeping, you can opt for bookkeeping services in Melbourne.
Progressive changes to the small business income tax offset
| Income year | Aggregated turnover threshold | Rate of offset | Maximum offset |
| 2015–16 | $2m | 5% | $1,000 |
| 2016–17 to 2019–20 | $5m | 8% | $1,000 |
| 2020–21 | $5m | 13% | $1,000 |
| 2021–22 and onwards | $5m | 16% | $1,000 |
The ATO will check your offset depending on your income tax return. They will use your:
- Net small business income you received as a sole trader
- Your portion of net small business income from a trust or partnership.
Applying for the Small Business Income Tax Offset
If you are a sole trader, the ATO uses your net small business income to calculate your small business income tax offset. As a sole trader, trust, or partnership beneficiary, make sure to include your business income on your tax return. Consider hiring a tax accountant to assist you with these matters. You can also find one nearby by searching ‘tax accountants near me’.
If you are new to owning a small business or feel unsure about the process, consulting a tax professional can provide helpful guidance on tax regulations and your responsibilities.
It’s also wise to stay informed about any updates to the offset, especially since it might change during budget time. Being knowledgeable about your tax obligations can help your business maximise available benefits and concessions while avoiding potential issues with the ATO.
Conclusion
Now that you understand how the Small Business Income Tax Offset works and how to take advantage of it, it’s time to review the eligibility criteria and maintain accurate records of your business income throughout the year. With some extra funds in hand, you can enjoy improved cash flow and potentially enhance your small business’s financial position in the short term. Reliable Melbourne Accountants can also help you claim small business income tax offset.