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61 Entrepreneurs tax offset

Last updated 11 February 2019

Only complete this item if the trust is an eligible small business entity.

The entrepreneurs tax offset is an incentive to encourage small business growth. Certain small business entities are eligible to receive this tax offset, which can be up to 25% of their income tax liability in respect of their business income.

The entrepreneurs tax offset is provided under Subdivision 61-J of the ITAA 1997. It is a non-refundable tax offset and cannot be transferred to other entities or carried forward to later income years.

For a trust that is a small business entity, the tax offset is available to either the trustee or beneficiaries - depending on who is liable for tax on the trust income.

Beneficiaries and trustees of a trust that is a small business entity may be entitled to the tax offset in respect of net small business income earned by the trust through its business activities, provided the assessable income of those entities includes a share of that net small business income. However, beneficiaries and trustees of a trust are not entitled to the tax offset in respect of a share of net small business income that the trust received from another trust or a partnership.

The amount of the tax offset will vary depending on the aggregated turnover of the trust that is a small business entity. If the aggregated turnover is $50,000 or less, the trustee or trust beneficiaries can claim a tax offset equal to 25% of the income tax liability attributable to the business income. The tax offset begins to phase out when the aggregated turnover of the small business entity exceeds $50,000, and is reduced to zero when the aggregated turnover reaches $75,000.

For further information, see Entrepreneurs tax offset.

From the 2009-10 income year, an individual with net small business income that is eligible for the entrepreneurs tax offset as a beneficiary of a small business trust will also need to meet an additional income test.

The income test will restrict the eligibility of individuals whose income for entrepreneurs tax offset purposes is over a threshold amount of $70,000 for singles, or $120,000 if they have a family. This reduction will operate in addition to the current eligibility requirements applicable to the entrepreneurs tax offset - in particular, the aggregated turnover test phase out where aggregated turnover of the small business exceeds $50,000.

Trustee claimants of the entrepreneurs tax offset are not required to meet the income test.

Beneficiaries and trustees entitled to the entrepreneurs tax offset must show the required information at this item and at item 65 Statement of distribution.

Small business entity aggregated turnover

If the trust's aggregated turnover is $75,000 or more, do not complete this item because the beneficiary and the trustee of the trust are not entitled to the entrepreneurs tax offset.

Show at D the small business entity aggregated turnover of the trust. This is the annual business turnover of the trust plus the annual business turnovers of its affiliates and any entities it is connected with. There are aggregation rules to help you determine who is an affiliate and when an entity is connected with you for the purpose of calculating your aggregated turnover. Certain transactions, such as income from dealings between the trust and any entities it is connected with, or are its affiliates, are excluded from aggregated turnover.

Find out more

For more information, see Small business entity concessions.

If the trust is not affiliated or connected with any other entities under the aggregation rules, the aggregated turnover of the trust will be equal to its annual business turnover.

Small business entity turnover

This is the amount of total ordinary income earned in the income year in the ordinary course of carrying on a business and is used in determining the net small business entity income, see below.

It includes amounts such as payments for goods or services supplied, professional fees, commissions, interest received on amounts deposited in business banking accounts, and holding or security deposits forfeited by customers.

It excludes amounts such as GST you have charged on a transaction, rental income where rental activities do not form an ordinary part of the business, amounts resulting from realisation of an investment (such as the proceeds from the sale of a capital asset used in the business), payments received under an insurance recovery, and the principal component of a loan repayment.

In most cases, the aggregated turnover amount for the trust will be the same as its small business entity turnover. However, if any of the following circumstances apply you will need to make the following adjustments to calculate the small business entity turnover:

  • If you have included another entity's turnover in the aggregated turnover amount for the trust, you will need to  
    • subtract that entity's turnover, and
    • add back any income the trust derived from its affiliates or connected entities.
  • If the trust operated a business for part of the year, you only include the actual turnover amount for the trust - you do not need to use the estimate of its full-year turnover.
  • If the trust derived income from retail fuel sales, you must add back the sales amount.

Net small business entity income

Show at E the net small business entity income of the trust. Net small business income is the small business entity turnover of the trust less the allowable deductions attributable to that turnover.

Do not include any net small business income amounts received from partnership or trust distributions.

There must be an amount of net small business income included in the trustee or beneficiary's assessable income before an entitlement to an offset arises for that entity.

The following are some examples of amounts that do not directly relate to small business entity turnover, so they cannot be used to reduce small business entity turnover:

  • tax losses from prior years
  • personal superannuation contributions
  • gifts or donations
  • costs of managing tax affairs.

If the trust's small business pool includes any assets used partly for business and partly for other income-producing activities, the small business pool deduction for the purposes of determining the entity's net small business income must be apportioned using a reasonable basis.

See Entrepreneurs tax offset for more information.