As we all know that the government has introduced new rules to benefit small businesses, such as the $20,000 instant write off for a business asset. In the 2015-16 financial year, another benefit for certain small businesses has been introduced, which is called ‘small business income tax offset’ (SBITO).

A 5% tax discount is provided in the form of a non-refundable tax offset, which is capped at $1,000 for an income year.

Small business income tax offset is available to individuals:

  • who are small business entity for the income year (i.e. sole trader); or
  • who have a share of an unincorporated small business’ income included in their assessable income, such as a partnership or a trust.

A small business entity is a business taxpayer that has an aggregated turnover of no more than $2 million.

This rule doesn’t apply to net income received from a partnership or trust that is a ‘corporate tax entity’. And it does not apply to an individual in his or her capacity as the trustee of a trust either.

However, the discount doesn’t restrict to Australian sourced income, it may be claimed by a foreign resident individual on their Australian sourced business income.

The amount of your tax offset is equal to 5% of the following:

Total net small business income / Taxable income X Basic income tax liability


Smith is an SBE for the 2016 income year. Using the formula set out above, the amount of the SBITO that smith can claim for the income year is calculated as follows:

Step 1: Smith determines that he has:

  • taxable income of $75,000
  • a basic income tax liability of $15,922 (2015-16 individuals tax rates); and
  • total net small business income of $20,000.

Step 2: determine the percentage representing Smith’s net small business income:

$20,000 total net small business income / $75,000 taxable income = 26.76%

That is, nearly a third of Smith’s taxable income relates to his total net small business income.

Step 3: Apply the percentage to Smith’s basic income tax liability

i.e. 26.67% x $15,922 = $4245.87

Step 4: Calculate 5% of the result at Step 3

i.e. 5% x $4245.87 = $212.29

Step 5: determine the amount of the SBITO, being $212.29, in his 2016 income tax return because it is less than $1,000.

For any queries, or if you are looking for more information about the benefits for small businesses, please contact our accountants on 07 5444 1022 or