If you run your business as a sole trader, or you receive a share of business income from a partnership or trust, there is a tax concession that is easy to overlook: the small business income tax offset. It reduces the tax you pay on your business profit, and it is claimed in your own tax return.
How it works
According to the ATO, the offset is 16 per cent of the income tax payable on your net small business income, capped at $1,000 for each income year. The cap applies per person across all of your sources of small business income, so a share from two trusts does not double it.
Who qualifies
- You carry on a business as a sole trader, or you have a share of net small business income from a partnership or trust.
- The business has aggregated turnover of less than $5 million.
- For partnerships and trusts, the entity itself must be a small business and the income must come from its own business activities.
Companies cannot claim it, because it is an offset for individuals. It is also based on net income, meaning business income after deductions. If your net small business income is a loss, it is treated as zero and there is no offset.
What to do
- Keep your income and deduction records tidy through the year, because the offset follows your net profit.
- Ask your accountant to confirm your turnover and that any partnership or trust distribution qualifies.
- Use the ATO's small business income tax offset calculator to get an estimate.
- Remember it is a personal tax return item, so check it is included each year you lodge.
The offset is not large, but over several years it adds up, and it costs nothing to check. This is general information only. Confirm your eligibility on the ATO website or with a registered tax agent.