Conditions for applying the offset
Enquiry:
A business operates via a unit trust - turnover $2 million. The net profit of $400k is distributed to 2 discretionary trusts - $200k each.
The discretionary trusts then distribute to individual taxpayers.
My question is, are those individual taxpayers entitled to the small business income tax offset?
Explanation:
The ATO’s view is that the small business tax offset is only available if the individual is a direct beneficiary of the trust that carries on a business and is an SBE (using the $5m turnover threshold).
For example, if a unit trust carries on a business and meets the $5m threshold, but the units are held by discretionary trusts which are not carrying on a business in their own right, then the small business offset is not available when the income is distributed by the discretionary trusts to an individual beneficiary.
If the discretionary trusts separately carry on their own business activities then the offset could potentially apply, but only to the net business income derived by the relevant discretionary trust and distributed directly to an individual.