The small business income tax offset (also known as the unincorporated small business tax discount) can reduce the tax you pay by up to $1,000 each year.
The offset is worked out on the proportion of tax payable on your business income.
Eligibility
To be eligible, you must be carrying on a small business as a sole trader, or have a share of net small business income from a partnership or trust.
The small business must have an aggregated turnover of less than $5 million for the 2016–17 income year onwards.
|
Income year |
Aggregated turnover threshold |
Rate of offset |
Maximum offset |
|---|---|---|---|
|
2015–16 |
$2m |
5% |
$1,000 |
|
2016–17 to 2019–20 |
$5m |
8% |
$1,000 |
|
2020–21 |
$5m |
13% |
$1,000 |
|
2021–22 and onwards |
$5m |
16% |
$1,000 |
We'll work out your offset based on your income tax return. We use your:
- net small business income you earned as a sole trader
- share of net small business income from a partnership or trust.
See also
Working out your offset
The offset is worked out based on the proportion of tax payable relating to your total net small business income.
Your aggregated turnover threshold and your rate of offset depends on the income year of your return.
Your offset will be your rate of offset of the following amount, up to the limit of $1,000:
If your total net small business income is greater than, or equal to, your taxable income, your offset will be your rate of offset of your basic income tax liability for the year. The offset amount will be shown separately on your notice of assessment.
Claiming the offset
We calculate your offset using information from your tax return. Your offset amount will be shown on your notice of assessment.
If you're completing your return using myTax and need help working out the income amounts, you can use the Small business income tax offset calculator. The calculator works out your income amounts to be used to work out your tax offset, and tells you where to include them in your tax return. It doesn’t work out your tax offset; we'll do that for you when we process your tax return. You can access the calculator from within myTax or from the link below.
See also
Sole traders
We use your net small business income to calculate your small business income tax offset.
Calculating net small business income
Your net small business income is the sum of your assessable income from carrying on your business, minus any deductions.
If your net small business income is a loss, it's treated as zero and you're not entitled to the offset.
If you had more than one sole trader business during an income year, you combine all your assessable business income from all your sole trader businesses and then minus the deductions from that total income.
If you carried on more than one business and any of them made a loss, apply the non-commercial losses rules first. Your net small business income is only reduced by losses deductible in the current year. To work out your net small business income, start with the net business income or loss and then increase this amount by any sole trader deferred non-commercial losses not deductible in the current year.
Eligible income and deductions
Include the following amounts in your net small business income:
- farm management deposits claimed as a deduction
- repayments of farm management deposits included as income
- net foreign business income related to your sole trading business
- other income or deductions, such as interest or dividends derived in the course of conducting your business.
Income and deductions you cannot include
Don't include the following income amounts in working out net small business income:
- net capital gains you made from carrying on your business
- personal services income (unless you were a personal services business)
- salary and wages
- allowances and director's fees
- government allowances and pensions
- interest and dividends unless it's related to a business activity
- interest earned on a farm management deposit.
Don't include the following deductions in working out net small business income:
- tax-related expenses such as accounting fees
- gifts, donations or contributions
- personal superannuation contributions
- current year business losses, which are not deductible this year under the non-commercial loss rules
- tax losses from prior years (unless they are deferred non-commercial losses).
We'll work out your offset using the net small business income you show on your tax return.
Next step
Partnership and trust distributions
You may be eligible for the tax offset if:
- you have a share of net small business income distributed from a partnership or trust that is a small business entity
- you (as an individual) were a partner or beneficiary of that small business partnership or trust
- the business income was derived by the small business partnership or trust from carrying on its own business activities
- your assessable income includes a distribution or share of net income from that partnership or trust.
Your statement of distribution or advice from the partnership or trustee will show your share of net small business income from each partnership or trust. Your share of net small business income can't be a loss, but it can be zero.
Business income from another partnership or trust
You can only claim the offset for income derived by a partnership or trust, carrying on its own business activities, in which you're a partner or beneficiary. You can't claim the offset for business income derived by another partnership or trust you aren't a partner or beneficiary in.
Example: Trusts
Rogers Jones Goods is a small business operated by R & J Unit Trust. The Trust’s equal unit holders are the Rogers Family Trust and the Jones Family Trust.
Neither family trust operates a small business; they only receive a distribution of income from R & J Unit Trust. The distribution of income is included in each of the family trusts net income. Each family trust distributes the net income to the individual beneficiaries.
The beneficiaries of the family trusts are not entitled to the offset as the income is net small business income of R & J Unit Trust not the family trusts.
End of exampleYou're only entitled to claim the offset on the portion of business income derived by the small business partnership or trust from carrying on its own business activities.
Example: Partnerships and trusts
Chapman Reeves Accounting is a small business operated by a partnership. The partnership is between the Chapman Family Trust and the Reeves Family Trust, which each receive a 50% share of the net income totalling $140,000. Both family trusts distribute the income from the trust to the individual family members.
The Chapman Family Trust also carries on its own small business called Chapman Tutors. The Chapman Family Trust derives $50,000 from Chapman Tutors and $70,000 from its share from Chapman Reeves Accounting. An amount of $120,000 is distributed to its individual beneficiaries; however the individuals are only entitled to the small business income tax offset on $50,000.
The individuals are not entitled to the offset on the $70,000 that was distributed from the partnership, as this is net small business income of the partnership, not the family trust.
End of examplePartners
Any deductions you can claim as an individual partner will reduce your share of net small business income.
If your deductions are greater than your share of net small business income from that partnership, treat your share from that partnership as zero.
Partner deductions that reduce your net small business income include:
- landcare expenditure
- expenditure on a water facility
- deductible farm management deposits
- prior year non-commercial losses that you have claimed in the relevant year as a partner.
Deductions that don't reduce your share of net small business income are:
- tax-related expenses such as accounting fees
- gifts, donations or contributions
- personal superannuation contributions.
Don't include any personal services income attributed to you from a partnership that was a personal services entity.
If you're a partner, the statement of distribution or advice should also include details of any business losses. If the partnership made an overall loss on all the businesses, your share of net small business income will be zero and you aren't entitled to the offset on that partnership share.
If the partnership made an overall profit on all its businesses, but one business made a loss, you'll need to consider the non-commercial loss rules. If your share of the loss is not allowable as a deduction this year, you must increase your share of net small business income by your share of the loss.
If you had a repayment of a farm management deposit as a partner, this will affect your offset.
See also
Beneficiaries
Any deductions you can claim as an individual beneficiary will reduce your share of net small business income. This includes any deductible farm management deposits you made during the year.
If your deductions are greater than your share of net small business income from that trust, treat your share from that trust as zero.
Don't include the following deduction amounts:
- tax-related expenses
- gifts, donations or contributions
- personal superannuation contributions.
Don't include the following income amounts:
- your share of a net capital gain from a trust asset even if it’s been used in the business
- any personal services income attributed to you from a trust that was a personal services entity.
If you had a repayment of a farm management deposit as a beneficiary, this will affect your offset.
See also
Other business amounts to include
Include any income because you're a partner or beneficiary in a small business entity that are:
- repayments of farm management deposits
- any other business amounts.
Other business amounts must meet all the following criteria:
- they aren't included in the partnership or trust’s assessable income for an income year
- they would have formed part of the partnership or trust’s net small business income for an income year if the amount was included in the partnership or trust’s assessable income for that income year.
An example is if you receive a recoupment or reimbursement of a deduction that you previously claimed as a partner or beneficiary.
Don't include:
- your share of a net capital gain from a partnership or trust asset even if it’s been used in the business
- any personal services income attributed to you from a partnership or trust that was a personal services entity
- interest earned on a farm management deposit.
Reduce your farm management repayments, and other income amounts, by any deductions that are attributable to each of those amounts. You can reduce these amounts to zero, but not below.
Next step
If you are a trustee or minor beneficiary
You aren't entitled to claim the offset on behalf of a beneficiary if you're acting in your capacity as a trustee of a small business entity trust.
Beneficiaries who are minors under 18 years old aren't entitled to the offset, unless they're an excepted person.
See also
Non-commercial losses
The non-commercial loss rules determine whether the loss, or your share of the loss, is deductible in the current year. Your net small business income, or share of net small business income, is only reduced by losses deductible in the current year.
Sole traders
If you're a sole trader affected by the non-commercial loss rules, and your business loss is not deductible this year, treat that loss as zero when working out your net small business income.
If you have multiple businesses and a business loss is deductible in the current year, use that loss to offset a profitable business in working out your net small business income from all your businesses.
Partners
If you're in a partnership, the statement of distribution or advice should show details of any business losses. If your share of the loss is not deductible in the current year, you need to increase your share of the partnership's net small business income by that amount.
See also
PAYG instalments
Your pay as you go (PAYG) instalment will automatically take into account your offset after you have claimed it in your tax return. You can vary your instalment to take into account the offset if you have not yet lodged your tax return.
See also
The small business income tax offset can reduce the tax on your small business income by up to $1,000 each year.