Taxation — and having to comply with tax laws — is a subject almost never welcomed with enthusiasm. For many, the system is cumbersome and unnecessarily time-consuming. But, if you’re one of the millions of small business owners in Australia, your situation can even be more challenging due to:
- Expensive and tedious quarterly Goods and Services Tax (GST) reports
- Yearly changes in the Australian Taxation Office (ATO) rules and regulations
Many other factors negatively affect one’s experience with and opinion of tax compliance, but those we mentioned are the major contributors.
For a busy entrepreneur like you, it might be best to delegate that task to an outsourced tax preparation consultant for small businesses. As a big part of the country’s economy, small businesses may be eligible for up to $1000 in tax offsets from the government. That is, if you can identify and file them properly on time.
What’s a Tax Offset and What Does It Have to Do With My Business?
An income tax offset is a government initiative meant to incentivise entrepreneurial activity. Also, some 96% of Australia’s businesses are classified as an “SME.” They have a huge impact on the economy and job market, so offsets are critical to helping businesses recoup their losses incurred due to the pandemic.
The offset is calculated based on the rate (13% and 16% for the 2020-21 and 2021-22 financial years, respectively, maintaining the latter rate onwards) of taxes payable on the small business’ income.
Small businesses with an aggregated turnover of less than $5 million per fiscal year are eligible for a tax offset. The reduction, however, is capped at $1,000.
How Is My Income Tax Offset Calculated?
The ATO calculates the amount that could be offset from your company taxes based on your net income and type of small business you have: either a sole trader or partnership/trust.
Income Tax Offset as a Sole Trader:
Calculated as the sum of all assessable income from running the business, minus deductions, your offset report as a sole trader should cover:
- Net foreign business income
- All farm management deposits, which is claimed as a deduction
- All repayments of your farm management deposits, which is reported as part of the business’ income
- Other forms of income or deductions derived from running your business
*Do take note that sole traders with a net small business income operating at a loss are not entitled to a tax offset.
Income Tax Offset as a Partnership or Trust:
A partnership or trust’s tax offset is calculated according to its distribution of net small business income. Eligibility will depend on if:
- A share of your net small business income is a small business entity
- You were that partnership/trust’s partner or beneficiary, or your assessable income includes a share of its net income
- Income generated by the partnership or trust came from conducting its own activities
What Else Do I Need to Know About Tax Offsets?
Not every bit of your income and deductions are included in the computation of your net small business income (government allowances, wages, etc.). So, be sure to leave them out to calculate your tax offset properly.
Better yet, discuss the matter with an accountant you could trust. Your Finance Department’s outsourced solutions could provide you with more practical information on the conditions that apply to your business.
