If you have been working as a sole trader under an ABN in Australia, there is a tax offset you may be entitled to that many working holiday makers never claim. The small business tax offset can reduce the tax you owe by up to $1,000 per year and is applied on top of any other deductions or offsets you might be eligible for.
What is the small business tax offset?
The small business tax offset, also called the unincorporated small business tax discount, is a concession available to sole traders and partners in small business partnerships. It reduces the income tax payable on business income by a set percentage, with a maximum benefit of $1,000 per income year.
The offset is non-refundable, meaning it can reduce your tax payable to zero but cannot generate a refund on its own.
Who can claim it?
Your business must have an aggregated annual turnover of less than $5 million. For working holiday makers operating as sole traders, this threshold is almost never an issue. The offset applies to the tax payable on your ABN income portion of the return, not your employee income under a TFN.
You must be an individual taxpayer, not a company or trust. As a sole trader, you meet this requirement automatically.
How much is the offset worth?
For recent tax years, eligible sole traders have been able to claim a 16% discount on the tax payable on their business income, capped at $1,000. Your tax agent will calculate the exact amount when preparing your return.
Can it be combined with the low income tax offset?
Yes. The small business tax offset applies to the business income component of your return, while the low income tax offset applies based on total income. Both can be applied to the same tax return, reducing your total tax liability from both directions.
What if you earned both ABN and TFN income?
If you worked as both an employee (TFN) and a sole trader (ABN) during the same financial year, you lodge a combined tax return including both income streams. The small business tax offset applies only to the ABN income portion. This interaction is one of the reasons using a tax agent is worthwhile when your income comes from multiple sources.
Need help?
Working under an ABN and want to claim every offset you are entitled to?
We prepare tax returns for ABN holders and make sure every available offset is applied. Talk to our team on WhatsApp.
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Can you have both a TFN and an ABN at the same time?
Yes, and many working holiday makers do. Here is how the two numbers work together and when you need both.