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Small Business Income Tax Offset: Up to $1,000

Updated 17 October 2026 · General information · 4 min read

General information only. Not tax, legal or financial advice. We are not the ATO. Check ato.gov.au or ask a registered tax agent. Last checked against ATO pages: 17 October 2026. Amounts and dates marked expected or not verified should be re-checked before you rely on them. Examples use made-up numbers. This page contains no affiliate links.

Short answer: The ATO says the small business income tax offset (also called the unincorporated small business tax discount) can reduce your tax by up to $1,000 each year. You must carry on a small business as a sole trader, or have a share of net small business income from a partnership or trust, and the business must have aggregated turnover under $5 million. For 2021-22 and onwards the rate is 16%. You do not apply for the offset separately and the ATO works out the amount, but you do have to give the ATO the inputs: in myTax you enter your net small business income at the Small business income tax offset question in the Offsets section (the amounts are used only to work out the offset and are not added to taxable income). The ATO then shows the offset on your notice of assessment.

How it is worked out (ATO page, last updated 7 May 2025)

• The offset is your rate of offset (16%) applied to the proportion of tax payable relating to your net small business income, up to $1,000.
• Net small business income for a sole trader = assessable income from carrying on the business minus deductions. A loss is treated as zero.
• Include: deductible farm management deposits, repaid deposits included as income, net foreign business income related to the sole trading business, and interest or dividends derived in the course of the business.
• Do not include: net capital gains, personal services income (unless you were a personal services business), salary and wages, allowances and director's fees, government pensions, and interest or dividends not related to a business activity.
• Deductions that do not reduce it: tax-related expenses such as accounting fees, gifts and donations, personal super contributions, and non-deductible current-year losses under the non-commercial loss rules.
• If you have several sole trader businesses, combine them first, applying the non-commercial loss rules before you do (not verified in detail).
• Prior-year tax losses do not reduce net small business income either, unless they are deferred non-commercial losses (ATO).
• In myTax the income is reported in two places: at the business income section and again in the Offsets section.

Partners and beneficiaries

You can only claim for income derived by a partnership or trust from its own business activities in which you are a partner or beneficiary. Minors under 18 are not entitled unless they are an excepted person.

Link to PAYG instalments

The ATO says your PAYG instalment automatically takes the offset into account after you have claimed it; if you have not yet lodged your return you can vary your instalment to allow for it (varying PAYG instalments).

Made-up example

A sole trader with net small business income of $60,000 has tax payable on that income of, say, $9,000. 16% of $9,000 is $1,440, so the offset is capped at $1,000. (Purely illustrative: the $9,000 is not a real tax-scale calculation, and the ATO calculates the actual figure.)

Related

Sole trader deductions checklist · EOFY checklist · Personal super deduction

FAQ

Do I apply for it?

No separate application. In myTax you complete the Offsets section (the ATO calculator helps you work out the amounts), and the ATO calculates the offset when it processes your return.

Is 2026-27 the same?

The ATO page we read (last updated 7 May 2025) shows 16%, a $1,000 cap and a $5 million aggregated turnover threshold for '2021–22 and onwards'. We have not found a published change for 2026-27, but check the ATO page again before you lodge.

What we could not verify