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A Quick Reference For Australian Tax Rates And Related Information

A Quick Reference For Australian Tax Rates And Related Information

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Entrepreneurs Tax Offset

(The Entrepreneurs Tax Offset ended on 30 June 2012)

See Small Business Tax Discount (Offset) – from 1 July 2015

On 8 May 2011, the Government announced as part of the small business tax reform package in the 2011‑12 Budget that it would abolish the entrepreneurs’ tax offset from the 2012‑13 income year. The following applies to the position up to 30 June 2012.

The entrepreneurs’ tax offset (“ETO”) provides small businesses with an annual turnover of less than $75,000 with a maximum tax offset equal to 25 per cent of the income tax on their business income. 

The ETO is an offset which reduces tax payable. But if the offset calculation is more than tax payable, the balance is not refundable, nor is it transferable to any other tax payer.

An income test restricts eligibility of individuals whose income is over a threshold amount.

The offset is reduced by 20 cents for every dollar that the non-ETO small business income exceeds the following thresholds:

Single $70,000; or
Family $120,000.

“Income” for this purpose includes:

Taxable income
+ reportable fringe benefits
+ reportable superannuation contributions
+ net investment loss(es)

The ETO is for Small Business Entity individuals, partners or companies and includes benficiaries or trustees of a trust.

A Small Business Entity is a business entity with an aggregated turnover of $2 million or less in the prior or current financial year (definition S 328.110)

ETO Turnover Test
Aggregated business turnover Percentage of Offset
Less Than $50,000 25%
$50,001 to $75,000 Offset = ($75,000 – Turnover) / $25,000
 Over $75,000 Nil

To calculate available offset, requires the following steps:

Determine 25% of basic tax liability before offsets

  1. Calculate percentage of net small business income to taxable income
    (if the result is more than 100%, the business percentage is 100%)
  2. If small business turnover is $50,000 or less, the offset is the result of step 1 multiplied by the result of step 2
  3. If the small business turnover is more than $50,000, then
    1. Calculate the phase-out fraction with the formula
      ($75,000 – small business turnover) /$25,000
    2. The offset is the step 1 amount x step 2 amount x step 4.1 amount
  5. The final offset amount is then reduced by the income test formula:
    (Non-ETO income – [either: $70,000 or $120,000]) / 5

This page was last modified on 16 July 2015