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Item 5 - Label V - Net small business income

The partnership needs to work out its net small business income, as partners who are individuals need to know their share of net small business income so that, if eligible, they may claim the small business income tax offset in their own tax return.

An individual is only entitled to the offset in respect of a share of net small business income received from a small business entity partnership in which they are a partner, where the business income was derived by that partnership from carrying on its own business activities.

Partners who are prescribed persons (under 18 years of age and not excepted persons) are entitled to the offset on their share provided they are actively carrying on the partnership business.

The net small business income is the partnership’s assessable income from carrying on a small business, less deductions to the extent that they are attributable to that assessable income. If the partnership carries on multiple businesses, then combine all the partnership's assessable income and attributable deductions relating to those businesses to work out the net small business income.

If the partnership made a loss on a business activity, the non-commercial loss rules may affect an individual partner's share of net small business income, see Appendix 7: Deductions applicable to partners in the ATO online instructions at

When working out net small business income, do not include:

  • any personal services income that was attributed to another person

  • any of the following deductions:

  • tax-related expenses

  • gifts or contributions.

Small business income tax offset

A partner who is an individual may be entitled to a tax offset on the tax payable on their share of net small business income earned by a partnership that is a small business entity.

From 1 July 2016:

  • the small business income tax offset increased to 8%, previously 5%, with a limit of $1,000 each year

  • the offset applies to small businesses with aggregated turnover of less than $5 million (previously $2 million).

If you have indicated that the taxpayer is a small business entity, values will be defaulted from labels X and Y to the fields in the Small business income worksheet (sbc). The amount at 5V will be passed to the distribution statement to be distributed to partners so that they may claim the small business tax offset (SBTO) when they lodge their current year individual returns.

The worksheet is self-explanatory.

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