The Government will apply a family income test to the eligibility criteria for the entrepreneurs' tax offset (ETO) to more appropriately target the offset towards genuine small, micro and home-based businesses.
Currently, the ETO is claimed by many taxpayers for whom business is not a primary source of income and who have other, more significant, forms of income. The family income test will restrict access to the ETO for businesses with high alternative sources of household income.
The ETO provides a 25 per cent tax offset on the income tax liability of small businesses that have an annual turnover of $75,000 or less, phasing out from a turnover of $50,000. The family income test will further limit access to the ETO by restricting eligibility for singles from $70,000 and families from $120,000 adjusted taxable income per year.
This measure will apply from 1 July 2008 and has an ongoing gain to revenue which is estimated to be $90.0 million over the forward estimates period.
The measure demonstrates the Government's commitment to finding savings in the Budget to help tackle inflationary pressures. The measure is part of the Government's commitment to ensuring the tax system is as fair and efficient as possible.