Small Business Tax Offset Calculator
Estimate the small business income tax offset from eligible income and basic tax.
Return amounts
Combine eligible sole trader, partnership and trust amounts.
Use the individual’s taxable income after deductions.
Before any tax offsets. Exclude Medicare and study loan repayments.
Year and eligibility
Individual aged 18 or over; eligible business turnover below $5 million.
$903
16% of the tax attributed to eligible business income.
$5,644
$903
$1,000
2025-26. Eligible individual aged 18 or over; aggregated business turnover below $5 million. One $1,000 annual cap. Other offsets may limit the tax reduction.
Income That Enters the Offset
The small business income tax offset reduces an eligible individual’s tax by up to $1,000 a year. It applies to qualifying sole trader income and eligible business income shared through a partnership or trust. Company income tax has separate rules.
Eligible net small business income starts with assessable business income less the relevant business deductions. Combine eligible amounts across businesses and apply the non-commercial loss rules before entering the total. A net loss gives no offset.
Exclude net capital gains, salary and wages, director’s fees and private investment income. Personal services income qualifies only where the personal services business rules are satisfied. Business-related interest or dividends can qualify.
Tax-related expenses, gifts and personal superannuation contributions do not reduce the eligible business-income figure. The ATO’s offset guidance explains the income and deduction adjustments.
The Offset Calculation
Divide eligible net small business income by taxable income, with the proportion limited to 100%. Multiply that proportion by basic income tax liability, then apply 16%. The individual’s total annual offset cannot exceed $1,000.
Basic income tax liability means income tax before any offsets. Exclude the Medicare levy, Medicare levy surcharge and compulsory study loan repayments. Withholding credits do not enter this formula.
In this fictional mixed-income return, an adult sole trader has $35,000 of eligible net business income and $70,000 taxable income including salary. Basic income tax liability is $11,288. The business proportion is 50%, so the attributed tax is $5,644.
The offset is 16% of $5,644, or $903. If the same business proportion instead applies to $30,000 basic income tax, the calculated amount is $2,400. The annual cap reduces that offset to $1,000.
If eligible business income exceeds taxable income after other deductions, the calculation uses a 100% proportion. Zero taxable income with zero basic income tax gives a zero offset. Estimated amounts display as whole dollars after calculation.
Checking the Claim
Confirm the client is an individual with qualifying business income and meets the small business entity rules for this offset. The aggregated turnover threshold is below $5 million. Include connected entities and affiliates when the turnover rules require them.
Use the client’s income year, final taxable income and basic tax before offsets. Reconcile partnership and trust amounts to distribution statements and deduct relevant attributable expenses. The 16% rate and $1,000 cap apply to each financial year offered here.
This calculator assumes the individual is aged 18 or over. The small business offset provisions contain modified rules for younger individuals. Those cases need a separate calculation.
The offset is non-refundable. Other offsets and their application order can reduce the tax benefit available in the final assessment. This tool estimates the formula entitlement before those interactions. It does not calculate the client’s refund.
The ATO works out the offset from the lodged return and shows it on the notice of assessment. Reconcile the estimate with the business-income labels and the tax software calculation before lodging. Entered figures stay on this device and are not saved.