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taxes

Small Business Tax Offset Explained

The small business tax offset offered by the Australian government is designed to reduce your tax obligations as a business owner, helping you manage the financial burden of paying high taxes. 


If you are a small business owner or sole trader that earns less than $5 million per year, you could be eligible for a reduction in your tax. 

What is a small business tax offset? 

A tax incentive offered by the Australian government, the small business income tax offset (or the unincorporated small business tax discount), is designed to help businesses reduce their tax liabilities. 


As a small business owner, you can reduce your tax payment by up to $1,000 yearly depending on whether you meet the criteria set out by the Australian Taxation Office (ATO). The offset is calculated based on the income tax payable on your business income.

Eligibility and rate of offset


To be eligible for the tax offset you need to be a sole trader or have a share of small business income from a partnership or trust. 


Your business must also earn a turnover of less than $5 million per year. 


As of 2023, the offset rate is 16%, and the ATO can review and change the offset amount. The maximum offset you can claim as a small business owner is $1,000. The ATO works out how much you can claim based on the amounts shown in your tax return. You can work out your offset amount by visiting the ATO website.

Grow Your Business with QuickBooks

How to calculate your small business tax offset

To work out how much you could claim as a small business tax offset, you can use ATO’s calculator tool, which will give you an estimate based on the information you provide.


Before using the calculator, you’ll need to gather the following information: 


For sole traders:


For business owners, partners or beneficiaries:

  • The net small business income from your distribution statement or your share (if a partner).
  • Entitled deductions you’ve claimed against your share of net small business income.
  • Details, if the partnership conducted more than one business activity.


If you would like to work out your small business tax offset manually, you need to follow these steps:


  1. Work out the percentage of taxable income that comes from your small business income for the given financial year. 
  2. Calculate the tax payable from the total net small business income. For example, if the percentage of your small business taxable income is 95%, then that is the amount of your tax liability that is eligible for the small business tax offset.
  3. Work out your small business tax offset by using the current rate (16% offset) and your current tax liability to generate the offset amount. 

Example:


0.16 (current business tax offset rate) x (small business taxable income) = small business tax offset. 


Currently, the small business tax offset is capped at $1,000. If the amount calculated is higher than this, you will not receive more than $1,000.

How Quickbooks can help

As a small business owner, you might be familiar with your tax obligations and filing returns. Taking advantage of the small business tax offset can help to lower your taxes over the financial year, making your obligations more manageable. 


If you want to file for the small business tax offset, Quickbooks can help by tracking your business income and expenses, making filing your tax returns simple. 


Using the QuickBooks mobile app, you can set up reminders and alerts during the tax filing process, and generate reports on the go. This simplifies the process of filing the correct small business tax offset with the ATO and makes the end of the financial year a breeze.


Sign up for QuickBooks today and receive a 30-day free trial.

While every care has been taken to ensure the accuracy of the information presented as at 01 May 2023, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

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