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  • Partnership and trust distributions

    You may be eligible for the tax offset if:

    • you have a share of net small business income distributed from a partnership or trust that is a small business entity
    • you (as an individual) were a partner or beneficiary of that small business partnership or trust
    • the business income was derived by the small business partnership or trust from carrying on its own business activities
    • your assessable income includes a distribution or share of net income from that partnership or trust.

    Your statement of distribution or advice from the partnership or trustee will show your share of net small business income from each partnership or trust. Your share of net small business income can't be a loss, but it can be zero.

    Business income from another partnership or trust

    You can only claim the offset for income derived by a partnership or trust, carrying on its own business activities, in which you're a partner or beneficiary. You can't claim the offset for business income derived by another partnership or trust you aren't a partner or beneficiary in.

    Example: trusts

    Rogers Jones Goods is a small business operated by R & J Unit Trust. The Trust’s equal unit holders are the Rogers Family Trust and the Jones Family Trust.

    Neither family trust operates a small business; they only receive a distribution of income from R & J Unit Trust. The distribution of income is included in each of the family trusts net income. Each family trust distributes the net income to the individual beneficiaries.

    The beneficiaries of the family trusts are not entitled to the offset as the income is net small business income of R & J Unit Trust not the family trusts.

    End of example

    You're only entitled to claim the offset on the portion of business income derived by the small business partnership or trust from carrying on its own business activities.

    Example: partnerships and trusts

    Chapman Reeves Accounting is a small business operated by a partnership. The partnership is between the Chapman Family Trust and the Reeves Family Trust who each receive a 50% share of the net income totalling $140,000. Both family trusts distribute the income from the trust to the individual family members.

    The Chapman Family Trust also carries on its own small business Chapman Tutors. The Chapman Family Trust derives $50,000 from Chapman Tutors and $70,000 from its share from Chapman Reeves Accounting. $120,000 is distributed to its individual beneficiaries; however the individuals are only entitled to the small business income tax offset on $50,000.

    The individuals are not entitled to the offset on the $70,000 that was distributed from the partnership as this is net small business income of the partnership not the family trust.

    End of example

    Partners

    Any deductions you can claim as an individual partner will reduce your share of net small business income.

    If your deductions are greater than your share of net small business income from that partnership, treat your share from that partnership as zero.

    Partner deductions that reduce your net small business income include:

    • landcare expenditure
    • expenditure on a water facility
    • deductible farm management deposits
    • prior year non-commercial losses that you have claimed in the relevant year as a partner.

    Deductions that don't reduce your share of net small business income are:

    • tax-related expenses such as accounting fees
    • gifts, donations or contributions
    • personal superannuation contributions.

    Don't include any personal services income attributed to you from a partnership that was a personal services entity.

    If you're a partner, the statement of distribution or advice should also include details of any business losses. If the partnership made an overall loss on all the businesses, your share of net small business income will be zero and you aren't entitled to the offset on that partnership share.

    If the partnership made an overall profit on all its businesses, but one business made a loss, you will need to consider the non-commercial loss rules. If your share of the loss is not allowable as a deduction this year, you must increase your share of net small business income by your share of the loss.

    If you had a repayment of a farm management deposit as a partner, this will affect your offset.

    See also:

    Beneficiaries

    Any deductions you can claim as an individual beneficiary will reduce your share of net small business income. This includes any deductible farm management deposits you made during the year.

    If your deductions are greater than your share of net small business income from that trust, treat your share from that trust as zero.

    Don't include the following deduction amounts:

    • tax-related expenses
    • gifts, donations or contributions
    • personal superannuation contributions.

    Don't include the following income amounts:

    • your share of a net capital gain from a trust asset even if it’s been used in the business
    • any personal services income attributed to you from a trust that was a personal services entity.

    If you had a repayment of a farm management deposit as a beneficiary, this will affect your offset.

    See also:

    Other business amounts to include

    Include any income because you're a partner or beneficiary in a small business entity that are:

    • repayments of farm management deposits
    • any other business amounts.

    Other business amounts must meet all the following:

    • They aren't included in the partnership or trust’s assessable income for an income year.
    • They would have formed part of the partnership or trust’s net small business income for an income year if the amount was included in the partnership or trust’s assessable income for that income year.

    An example is if you receive a recoupment or reimbursement of a deduction that you previously claimed as a partner or beneficiary.

    Don't include:

    • your share of a net capital gain from a partnership or trust asset even if it’s been used in the business
    • any personal services income attributed to you from a partnership or trust that was a personal services entity
    • interest earned on a farm management deposit.

    Reduce your farm management repayments, and other income amounts, by any deductions that are attributable to each of those amounts. You can reduce these amounts to zero, but not below.

    Next step:

    If you are a trustee or minor beneficiary

    You aren't entitled to claim the offset on behalf of a beneficiary if you are acting in your capacity as a trustee of a small business entity trust.

    Beneficiaries who are minors under 18 years old aren't entitled to the offset, unless they are an excepted person.

    See also:

      Last modified: 18 Jun 2019QC 49023