The bad thing about becoming a professional dancer is that the activity is no longer classified as a hobby, recreation or sporting activity and this makes us liable for taxes. But it’s not all bad news… there are a wide range of deductions (petrol is sometimes deductible and we get tax-deductible kicks!!!) and tax offsets available to us to ease the financial strain we’re all used to.
Starting this financial year (07/08), there’s a new scheme called the Simplified Tax System (STS) which provides many concessions for small businesses. The one particularly of interest to us is something called the “Entrepreneurs’ Tax Offset” (ETO).
This scheme was introduced to ease the financial strain on small businesses and encourage growth of the small business sector. Read on to find out whether you’re eligible for the offset and how you can claim it. Please note that this article is written specifically for dancers working as a sole trader. The scheme is much broader than what is purported in this article.
You Must be a Small Business Entity
A small business entity is an individual, partenership, company or trust that is carrying on a business and has an aggregate turnover of less than $2 million
You are conducting a business if you are a sole trader trading under an ABN.
Any income you receive under that ABN will be assessable income.
If you do not have an ABN, you can register as a sole trader HERE. (It’s free and takes less than 10 minutes)
This scheme affects tax returns for the 2007-08 income year onwards.
Are you Eligible for an ETO?
The ETO is available to an individual or a company that is an STS taxpayer. AND
The STS turnover is less than $75,000 for the financial year AND
There is a net STS income (the turnover must be greater than the allowable deductions)
What the Scheme Does
The entrepreneurs’ tax offset (ETO) is a new measure that allows a tax offset (reduction) of up to 25% of the income tax attributable to the business income of a business in the simplified tax system (STS) with an annual group turnover of less than $75,000.
You access this concession by filling out the relevant sections on your tax return.
How to Calculate your ETO
If your STS group turnover is $50,000 or less, you can claim a tax offset of 25% of the income tax liability attributable to your STS business income. If the STS group turnover is more than $50,000, the tax offset is phased out until it equals zero at a turnover of $75,000.
Step 1: Work out the taxable income for the year.
Step 2: Work out 25% of the basic income tax liability on that taxable income (in working this out, use the applicable tax rates and take into account any special provisions that affect the calculation of liability, but don’t take any tax offsets into account).
Step 3: Work out the STS percentage using the formula:
(net STS income for the year / taxable income for the year ) x 100
If the percentage that results is more than 100%, the STS percentage is 100%.
Step 4: If the STS group turnover is $50,000 or less, the tax offset is:
Step 2 amount x STS percentage
Step 5: If the STS group turnover is more than $50,000, the offset is adjusted by the STS phase-out fraction. This is worked out using the formula:
($75,000 – the STS group turnover for the year) / $25,000
The tax offset is then:
Step 2 amount x STS percentage x STS phase-out fraction
EXAMPLE: Sole trader with other non-business income
Kalee runs a business from her home and is an STS taxpayer for the year ended 30 June 2006. The net income from her business is $18,000 (representing a turnover of $28,000 less business expenses of $10,000).
In addition she has a part-time job as an employee from which she receives a salary of $27,000.
The Step 1 amount = 18,000 + $27,000
= $45,000 (taxable income)
The Step 2 amount = 25% of Kalee’s basic income tax liability of $9,360
= 2,340
The Step 3 percentage = $18,000 / $45,000 x 100
= 40% (the STS percentage)
The Step 4 amount = $2,340 x 40%
= $936
Step 5 is not applicable as her STS group turnover is not more than $50,000.
Kalee is entitled to a tax offset of $936.
