Question: I have a Fixed Unit Trust that is a small business entity. 100% of it distributes to a Discretionary Trust. This trust distributes to a family group to their ITR, I have ticked Small business entity everywhere, however the SBE Tax Offset is not appearing in the ITRs

Answer: As per the ATO - 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.

Illustration:

ABC Trust is fixed unit trust (no distribution) and is an SBE it ONLY distributes to Trust DEF

DEF Trust  is sole beneificary/ holds all the units  of ABC Trust, so it receives SBE income (base on the ATO, it cannot then distribute SBE)

DEF Trust has family as beneficiary, in which form will not distribute a trust income.

distribution is not visible 

ATO link - https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/in-detail/small-business-income-tax-offset