The entrepreneurs' tax offset has been slashed

Many self-employed small business people are eligible for a 25% tax rebate thanks to the existence of the entrepreneurs' tax offset.

Unfortunately, new rules that came into force in June are likely to cut the offset some people receive in the 2009-10 and later financial years.

Under both the old and new rules someone who is self-employed can qualify for the full 25% offset if their business turnover (that is, income from all business activities before deducting costs) doesn't exceed $50,000. The offset then phases out before ceasing entirely when turnover reaches $75,000.

Once you have worked out how much of the 25% offset you qualify for you can calculate the actual dollar amount of your offset by applying the offset percentage (that is, 25% or less) to the tax payable on your taxable income. Previously that is where the calculation stopped but not now.

Under a new test a single individual can get the full offset only if their non-business income - for example, from employment, including reportable fringe benefits and superannuation contributions - is less than $70,000.

Threshold for couples is $120,000. The offset reduces by 20 cents for every dollar above these thresholds.

This change will impact on sole traders who earn significant non-business income or whose spouse does. While 2009-10 has come and gone, it makes sense to take account of the new test in the current and future tax years

Get stories like this in our newsletters.