Tax Return:: 2022FY Small Business Income Offset
Hello, this is your tax specialist, P&C Tax Professionals.
Did you know that if you are running a small business, you may be able to take advantage of the small business income tax offset? The small business income tax offset or the unincorporated small business tax discount can help you to reduce your tax liability by up to $1,000 per year. Read on to determine if you are eligible for the offset.
<Eligibility criteria>
You must be running a small business either as a sole trader or alternatively, be entitled to a share of the net small business income from a partnership or trust.
In order to be defined as a small business, the business needs to have an aggregated turnover of less than $5 million for the 2016-17 financial year and onwards.
Please refer to the table below for the rates of the offset and the maximum offset that is available for the business according to each income year.
Income year | Aggregated turnover threshold | Rate of offset | Maximum offset |
2015-16 | $2 million | 5% | $1,000 |
2016-17 ~ 2019-20 | $5 million | 8% | $1,000 |
2020-21 | $5 million | 13% | $1,000 |
2021-22 and onwards | $5 million | 16% | $1,000 |
<Calculating your offset>
The offset is basically computed based upon your proportion of tax payable that is in relation to your total net small business income.
If your total net small business income is greater than or equates to your taxable income, your offset will simply be your rate of offset from your basic income tax liability for the financial year. You would be able to check this offset amount on your notice of assessment.
Now, to further consolidate our understanding, let’s apply this equation to a simple example.
<Example>
Jeremy is a sole trader on a student visa operating a business with an aggregated turnover of less than $5 million. His total net small business income for the 2022FY is $50,000 and his taxable income for the same financial year equates to $70,000.
Tax payable on taxable income:
Taxable income = $70,000
Tax free part = $18,200
Tax payable on taxable income
= $13,217
Using the formula:
= 9,440.71
Small business income offset = $9,440.71 x 16% = $1510.51
However, since the small business income offset only allows you to reduce your tax liability up to a maximum of $1,000, Jeremy will only be able to claim the maximum small business income offset of $1,000.
As with the low income tax offset and the low and middle income tax offset, if you apply for your tax return with P&C Tax Professionals, this offset amount will automatically be calculated for you while we prepare your tax return.
Like always, if you have any further questions, please do not hesitate to contact us through our Facebook Page (P&C Tax Professionals – Australia) or please send them to our email address at pnctax@naver.com.
Thank you and bye for now!
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