Let’s ensure that you’re receiving the correct entitlements!
If you’re a business owner in Australia and receive Centrelink payments, you will need to report your business income to Centrelink to ensure that you are receiving the right entitlements.
Reporting your business income can seem daunting at first, but it’s an essential step to ensure that you receive the correct amount of support.
Centrelink will assess your business separately to other employment income. If you’re getting a payment from Centrelink, you will need to tell them if you or your partner start or become involved in running an existing business. You don’t need to report your business income each fortnight as part of your employment income reporting.
Centrelink uses the information you give them about your business to work out an annual income amount. They then use that amount to work out your fortnightly payment rate. If your business income or assets change, you must let them know. At the end of this post we will show you an alternative to dealing with Centrelink.
A step-by-step process to reporting your business income
- How your income is assessed
Your assessable income as a sole trader or business partner is your gross income minus the deductions they allow. If you’re a sole trader they use all your business income minus allowable deductions.
If you’re in a business partnership, they use your share of the business income minus allowable deductions.
- Deductions they allow
Not all deductions claimed in your tax return can be used to reduce your assessable business income for your payment from Centrelink.
They can reduce your assessable business income by the following:
- Costs needed to earn business income
- Depreciation of business assets claimed under Division 40 of the Income Tax Assessment Act 1997
- Employee superannuation
They can’t reduce your assessable business income by any of the following:
- Borrowing costs
- Amortisation of intangible assets
- Prior year losses
- Private health insurance premiums
- Personal life insurance premiums
- Offsetting losses from another business
- Superannuation for sole traders or business partners
- Some capital costs such as a large equipment purchase
- Tax agent’s fees
- Details they will require
When you first tell them about your business, you’ll need to complete a Business Details Form (MOD F form). You also need to give Centrelink the most recent versions of each of the following items:
- Your personal tax return
- Your partnership income tax return (if you’re in a partnership)
- Profit and loss statement or income statement
- Depreciation schedule
- Balance sheet
- Livestock trading account if the business is a primary production business
- You should also give them a copy each year of your financial statements and personal and business income tax returns. You should provide these within 14 days of you or your tax agent preparing them.
Financial statements including the following:
- Profit and loss statements
- Balance sheets
- Depreciation schedule
- Notes to accounts
You need to tell Centrelink within 14 days about any changes to your overall business income or assets. For example, if your business took on or lost a major contract, this may be a change to your overall business income.
They know businesses have busy and slow periods. You only need to tell them about changes to your business income if you think it will be different over the whole year. If your business income has changed you need to give them an updated Profit and Loss Statement form.
What are my other options?
As you can see it’s quite a process, the reason being is that the system was designed for people in employment and not for business owners. For this reason, the Department of Employment & Workplace Relations created a program known as Self-Employment Assistance (previously NEIS). This free program is an alternative to reporting your income to Centrelink.
Self-Employment Assistance program provides:
- Training in small business management, business skills and business plan development
- A 9-month allowance equivalent to the Jobseeker Allowance (if in receipt of an eligible Centrelink benefit)
- 12 months of business advice and mentoring
This will allow you to receive an equivalent allowance to your jobseeker payment (paid by the Department of Employment for up to 9 months at the basic rate of jobseeker payment) which unlike your Centrelink payment, is not affected by business income! That’s right, you can earn as much as you like in the business.
You can find out more and apply for Self-Employment Assistance here.