Income for ETO purposes
If you are an individual who is eligible for the ETO as a sole trader, partner in a partnership or beneficiary of a trust, you also need to know your income for ETO purposes.
To work out your income for ETO purposes, add up your:
- taxable income
- reportable fringe benefits total
- reportable superannuation contributions
- total net investment loss.
Then subtract the following amounts where you are eligible for an ETO of more than zero before applying the income test:
- your net small business income
- any share of net small business income you received as a partner in a partnership or beneficiary of a trust.
If you had a spouse on the last day of the income year, your income for ETO purposes will also include the sum of your spouse's:
- taxable income
- reportable fringe benefits total
- reportable superannuation contributions
- total net investment loss.
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Any net small business income of your spouse is not deducted from the calculation when working out your income for ETO purposes.
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Example: Sole trader's income for ETO purposes
In the 2010-11 income year, Kerry runs a bookkeeping business which has an aggregated turnover of $25,000 for the 2010-11 income year. Before applying the income test, Kerry can claim the ETO for the net small business income attributable to her bookkeeping business.
The net income from her business is $20,000 (that is, $25,000 turnover less $5,000 business expenses).This is Kerry's net small business income.
She also has a part-time job from which she receives salary and wages of $30,000. She is married to Mark, who earns $65,000 per year and who receives a further $15,000 in reportable fringe benefits.
As Kerry and Mark are married as at the last day of the income year, both Kerry and Mark's income are taken into account in working out Kerry's income for ETO purposes. That is, ($50,000 - $20,000*) + $65,000 + $15,000 = $110,000.
* Kerry's net small business income of $20,000 has been deducted from this amount.
Example: A partner's and beneficiary's income for ETO purposes
Nick is a partner in a partnership that is a small business entity with an aggregated turnover of $70,000 for the 2010-11 income year. As the partnership's aggregated turnover is less than $75,000, Nick can claim the ETO for any distribution from this partnership. Nick receives a partnership distribution of $25,000 for the 2010-11 income year.
Nick is also a beneficiary of a small business trust with an aggregated turnover of $120,000 for the 2010-11 income year. As the trust's aggregated turnover is more than $75,000, the beneficiaries are not eligible for the ETO. Nick receives a $30,000 trust distribution which he must include in his assessable income for the year.
In addition to the income he received from the partnership and trust, Nick also earns $41,000 from investments he holds. So, for the 2010-11 income year, Nick has taxable income of $96,000. However, his income for ETO purposes is $71,000 ($96,000 - $25,000).
Meaning of spouse
Your spouse includes another person (whether of the same sex or opposite sex) who:
- you were in a relationship with that was registered under a prescribed state or territory law
- although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.
Meaning of qualifying dependant
For the purpose of determining your income test threshold, a qualifying dependant is:
- your child who is under 21 years old (whether or not they were an Australian resident)
- a resident of Australia to whose maintenance you contribute and who is
- a child under 21 years old (not being a student)
- a student under 25 years old who is studying full-time at school, college or university
- a child-housekeeper - being your child (of any age) who is wholly engaged as your housekeeper
- your spouse
- your parent or a parent of your spouse
- an invalid relative - that is, your child, brother or sister aged 16 years or older who
- receives an Australian Government disability support pension
- receives a rehabilitation allowance under the Social Security Act 1991 and who, immediately before they were eligible to receive that allowance, was eligible for an invalid pension under that Act, or
- has a certificate from a Commonwealth-approved doctor certifying a continuing inability to work.
A child includes your natural child, an ex-nuptial child, your adopted child or a child of your spouse (step child).
A dependant (other than a child less than 21 years old), needs to be an Australian resident for tax purposes. We treat a student as a resident if they have always lived in Australia or they came to live in Australia permanently, unless they have set up a permanent home outside Australia.
If your dependant was overseas, we will consider them to be your dependant for tax offset purposes if you are taking the steps necessary for their migration in a timely manner.
What is maintaining a dependant?
You maintained a dependant if any of the following applied:
- you and your dependant lived in the same house
- you gave your dependant food, clothing and lodging, or
- you helped them to pay for their living, medical and educational costs.
We consider you to have maintained a dependant even if the two of you were temporarily separated, for example, due to holidays or because they were overseas.
Sections within Income for ETO purposes
Last Modified: Tuesday, 3 July 2012