One of the Small Business incentives delivered as part of the 2015 Budget, the Small Business tax discount for unincorporated businesses takes effect from 1 July 2015.
The “discount” is available as an offset to individual small business taxpayers up to a maximum of $1,000 per financial year.
The offset is applied against tax payable on business income.
The 2016 Budget contained measures to increase offset from 5% to 8% from 1 July 2016 for businesses with turnover up to $5 million (increased from $2 million).
In following financial years, this discount rate is to be increased in phases until it reaches 16% in the tax year 2026-27. Amending legislation has now been passed by parliament – see: Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016
In October 2018 the Government announced that the scheduled introduction of the 16% offset rate will be brought forward to the 2021-22 year.
|Year(s)||Legislated Offset rate||Maximum Turnover||Max. Offset||*proposed re-schedule|
|2016-17 to 2023-24||8%||$5 million||$1,000|
Essential features of the Small Business offset
- It applies to small business entities with aggregated turnover less than $5 million ($2 million up to 30 June 2016)
- The offset is only available to individuals (not in a trustee capacity) who are a
- small business entity (e.g. sole traders)
- partner in a small business entity partnership
- beneficiary of a small business entity trust
- the tax offset is 8% (5% to 30 June 2016) of the tax apportionable to “total net small business income” (to a maximum of $1,000)
- Net capital gains and personal services income (unless from a personal services business) are disregarded in working out net small business income
- The offset is not precluded from applying to Australian sourced income of a foreign resident, or the foreign business income of an Australian resident.
- The definition of small business entity requires that a small business entity carries on a “business” which is any ‘profession, trade, employment, vocation or calling, but does not include occupation as an employee’.
- Attributable deductions can include farm management deposits, recovery of non-commercial losses (in accordance with existing attribution rules) and deductions claimed in accordance with section 40-880.
- Deductions for gifts or contributions under Division 30, and deductions for personal superannuation contributions are excluded from the determination of net small business income.
- The total amount of net small business income cannot be greater than taxable income, nor can it be less than zero
- There are limitations on offset availability for minors
Legislation enabling the original 5% offset was passed by parliament on 13 August 2015.
This page was last modified 2018-10-11