The Small Business Income Tax Offset: Are You Eligible? How Much Can You Save?

The Small Business Income Tax Offset can save your small business up to $1,000 per year. But not all businesses are eligible. Find out whether you can claim the offset for your business, how much you can save, and how to claim it.

What is the Small Business Income Tax Offset?

The Small Business Income Tax Offset (also known as the unincorporated small business tax discount) is a benefit for small businesses that can reduce the tax they pay by up to $1,000 per year.

The offset was launched in 2015 to support small businesses to create jobs and drive economic growth.

Who is eligible for the Small Business Income Tax Offset?

To be eligible for the Small Business Income Tax Offset, you must satisfy two criteria:

  1. You must be either a sole trader or participate in a partnership or trust; and
  2. Your business must have a turnover of less than $5 million in the 2019-20 financial year

The ATO will calculate your eligible tax saving based on your net small business income. If you participate in a partnership or trust, then it will be based on your share of the net small business income.

What is net small business income?

Net small business income is your total income from operating your business, minus any deductions. If you operated at a loss, then your net small business income will be treated as zero and you will not receive the Small Business Income Tax Offset.

There are a few common things that cannot be included when calculating your net small business income. These include capital gains from operating your business, your salary, and any director’s fees or allowances.

As always, it’s best to speak to your accountant to help calculate net small business income. You should also check out the ATO Small Business Income Tax Offset Calculator for guidance.

How to calculate the Small Business Income Tax Offset

The Small Business Income Tax Offset is calculated based on:

  1. The ‘rate of offset’ for the current year; and
  2. Your total net small business income for the current year

Calculating the offset can be a little tricky… First, you must divide your total net small business income by your taxable income for the year. Then multiply the result by your basic income tax liability for the year. Then multiply that result by the ‘rate of offset’ in the table below.

Small Business Income Tax Offset =
((Your total net small business income for the year ÷ Your taxable income for the year) x
Your basic income tax liability for the year) x
Rate of Offset

Income YearAggregated Turnover ThresholdRate of OffsetMaximum Offset
2015-16$2m5%$1,000
2016-17 $5m8%$1,000
2017-28$5m8%$1,000
2018-19$5m8%$1,000
2019-20$5m8%$1,000
2020-21$5m13%$1,000
2021-22$5m16%$1,000

The current rate of offset for the 2019-20 financial year is 8%. And, as you can see, the rate of offset will increase to 16% by 2021-21.

How to claim the Small Business Income Tax Offset

The great thing about the Small Business Income Tax Offset is that it’s very straightforward. As a small business owner, you don’t need to do much at all.

As part of your regular tax return, you will state your net small business income. The ATO will take this number and calculate your Small Business Income Tax Offset on your behalf.

This applies both to tax returns completed using the ATO’s myTax tool and to tax returns completed by a professional accountant.

So sit back and relax… you will find your Small Business Income Tax Offset amount on your final Notice of Assessment from the ATO.