The 25 per cent entrepreneurs' tax offset - a critical analysis



Publication Details

McLaren, J. (2006). The 25 per cent entrepreneurs' tax offset - a critical analysis. Australasian Tax Teachers Association Conference 2006: old taxes in a new world (pp. 1-15). Melbourne, Australia: University of Melbourne.


It should be acknowledged at the start that any measure to reduce the income tax burden on business, and in particular small business in Australia, is a step in the right direction, given the comparative rates of tax that apply in the Asia-Pacific region. However, using the tax system to attempt to encourage growth in small business may not be the ideal approach, and the purpose of this paper is to critically analyse the new 25% tax offset for entrepreneurs' as well as propose areas that need further research and further options that may be considered to promote the financial health of small business in Australia. The Government chose to provide a "tax offset" rather than a tax incentive based on generating additional tax deductions such as depreciation allowances, and this means that in order to take a advantage of the tax benefit, the business must be in a position where it pays income tax, otherwise the benefit is of no value. Small businesses', in their early years usually have expenses that substantially reduce the overall profitability of the business and thus the amount of tax payable. The tax offset may not be that important in the early life of a small home-based business for this reason.

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