How Much Tax Does a Small Business Pay in Australia?

Posted on , updated on by Karen Misson
Small business owner doing his tax on a laptop

 

Australian small businesses earning $100,000 annually can save $2,179 in taxes under the new 2025 tax rates. Your financial success depends on your understanding of small business tax rates, which vary substantially based on your business structure and revenue.

The company tax rate remains at 25% for small businesses with annual revenue of $50 million or less, but sole traders enjoy a tax-free threshold of $18,200. Your business must register for GST when turnover reaches $75,000. This detailed guide explains small business taxation in Australia and covers tax rates, obligations, available concessions and tax planning strategies for the 2025 financial year.

Understanding Small Business Tax in Australia

The Australian Taxation Office (ATO) considers a business “small” when its annual turnover stays below $10 million for most tax purposes. This threshold drops to $2 million for capital gains tax concessions. Business taxation in Australia works differently from individual income tax. Your business structure and activities determine the rules and obligations you need to follow.

Small business owners must understand several types of taxes. The ATO handles most business taxes, while state governments manage specific ones like payroll tax. Small businesses often face unexpected tax bills that hurt their cash flow if they don’t plan properly. That’s why you should keep your tax money in a separate account throughout the year.

Here are the main taxes Australian small businesses need to know about:

  1. Goods and Services Tax (GST): This 10% tax applies to most goods and services. Your business must register once yearly turnover hits $75,000. GST-registered businesses collect this tax from customers for the ATO but can claim GST credits on business expenses.
  2. Company Tax: This tax applies to business profits. Companies pay 30% standard rate, but “base rate entities” with turnover under $50 million and less than 80% passive income pay 25% instead.
  3. Income Tax: Non-company businesses pay tax on their income at individual rates. You should track all business expenses carefully since many qualify for tax deductions.
  4. Payroll Tax: States and territories charge this tax on employee wages. Rates vary between 4.85% and 6.85%, with different thresholds in each location.
  5. Capital Gains Tax (CGT): You pay this when selling business assets at a profit. Small businesses might qualify for special CGT concessions.
  6. Fringe Benefits Tax (FBT): This applies to non-salary benefits given to employees.
  7. PAYG Withholding: This system helps you withhold employee income tax.
  8. PAYG Instalments: This spreads your tax payments across the financial year.

Your business must keep accurate records to comply with tax laws. The ATO requires you to store receipts, bank statements, expense invoices, and wage records for five years. Small businesses with combined turnover below $50 million can now deduct the full cost of eligible assets under $20,000 that they first use or install between July 2024 and June 2025.

Tax rules change often, so you need to stay informed. The ATO announced its focus areas for 2025, which include contractor income reporting, GST compliance, and small business support measures. The 2025-26 Budget has introduced new ways to reduce business costs, including energy bill relief through December 2025.

Tax laws can be complex, so working with a registered tax professional makes sense. A qualified accountant will help you find the right deductions, stay compliant, and create effective tax strategies.

Tax Rates by Business Structure

Your choice of business structure shows its true colours when tax season arrives. Australian business structures come with different tax rates and obligations that affect your profits.

Sole Trader Tax Rates

Australian sole traders pay tax at individual income tax rates. They get a great advantage: the $18,200 tax-free threshold.

Taxable Income Tax Rate Tax Payable on This Income
$0 – $18,000 0% Nil
$18,201 – $45,000 16% 16c for each $1 over $18,200
$45,001 – $135,000 30% $4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000 37% $31,288 plus 37c for each $1 over $135,000
$190,001 and over 45% $51,638 plus 45c for each $1 over $190,000

 

The tax process is straightforward for sole traders. You just need to include your business income in your personal tax return’s business items section. There’s no need for a separate business tax return, which makes your tax obligations simpler. The catch is you can’t claim deductions for money you take from the business for personal use.

Partnership Tax Rates

Partnerships use a flow-through tax system where the partnership doesn’t pay tax itself. Each partner reports their share of partnership income on their individual tax return and pays tax at their personal rates. This rule applies even if partners haven’t received their share of the income.

Every partnership must file its own tax return. This return shows income, deductions, and how profits or losses are shared among partners. Partners can claim their share of any partnership losses against other income.

Company Tax Rates

Companies make tax planning easier with their flat rate structure. The standard rate sits at 30%, but small businesses that qualify as “base rate entities” pay a lower 25%. Your company needs to:

  1. Keep aggregated turnover under $50 million
  2. Get no more than 80% of assessable income from passive sources like dividends, interest, rent, or royalties


Companies pay tax on every dollar they earn—there’s no tax-free threshold. This setup works well for profitable businesses since the 25% rate beats the top individual tax rates.

Trust Tax Rates

Trust taxation needs careful navigation. The trust itself usually doesn’t pay tax. Instead, beneficiaries pay tax on their share of trust distributions at their individual rates. The trustee pays the highest individual rate on any income not distributed by financial year-end.

Discretionary trusts let you distribute income in tax-smart ways. Family trusts can tap into the 50% capital gains tax discount on assets held over 12 months—something companies cannot do.

This table shows the 2025 tax rates for different business structures:

Business Structure Tax Rate Key Benefits
Sole Trader Individual rates (0-45%) $18,200 tax-free threshold
Partnership Individual partner rates Ability to split income
Company 25% (small business) or 30% Lower flat rate for profits
Trust Individual beneficiary rates Income distribution flexibility

 

Your best business structure depends on your situation, expected profits, and long-term goals.

Key Small Business Tax Obligations

Tax compliance is essential to legitimate business operations in Australia. Small businesses need to meet several ongoing compliance requirements throughout the financial year, beyond just paying the correct tax rate.

PAYG withholding comes into play when you pay employees, company directors, or contractors without an ABN. The applicable tax amount must be withheld from these payments. You should report it on your Business Activity Statement (BAS) and send it to the ATO. Your business could face penalties and lose tax deductions for these payments if you don’t comply.

PAYG Instalments let you spread your income tax payments across the year. The ATO will add you to this system once your business income hits certain thresholds. You can also choose to join the system to avoid a large tax bill at year-end. Your BAS or instalment activity statement will show quarterly instalments.

Lodging your BAS plays a vital role in your tax obligations. This statement covers GST, PAYG withholding, and PAYG instalments. Businesses need to lodge their BAS each quarter by the 28th of the month after each quarter (October, January, April, and July). You can lodge through online services, SBR-enabled software, registered agents, or mail.

Superannuation guarantee rules require employers to contribute 11.5% of their employees’ ordinary time earnings to super funds. These payments align with BAS lodgment due dates each quarter. The government plans to introduce “Payday Super” from July 2026, which will require super payments alongside salary and wages.

Detailed record-keeping supports all your tax obligations. Your business must keep records for five years. The ATO requires:

  • Sales and income records (invoices, receipts, cash register tapes)
  • Expense and purchase documentation
  • Year-end records (debtors/creditors lists, depreciation schedules)
  • Bank statements and financial records
  • Tax invoices for GST claims

These records should be available in English (or easily translatable) and remain unchanged. Strong record-keeping practices will help you stay compliant, monitor your business health, make better decisions, and maximise your legitimate deductions.

Small Business Tax Concessions & Deductions

Australian small businesses can access many tax concessions and deductions that help reduce their financial burden. These incentives can substantially lower your tax liability and improve your bottom line.

The small business instant asset write-off stands out as one of the most valuable concessions. Eligible businesses with a total turnover under $10 million can immediately deduct the full cost of eligible assets worth less than $20,000 during the 2024-25 financial year. This applies to multiple assets, both new and second-hand. Each individual asset must fall below the threshold. The process is straightforward: buy the asset and claim the deduction while lodging your tax return.

Unincorporated small businesses with turnover below $5 million can also benefit from the small business income tax offset. This reduces tax by up to $1,000 yearly, calculated at 16% of the tax payable on your business income. You’ll see this offset as a separate item on your notice of assessment after lodging your tax return.

Small businesses with turnover under $2 million might qualify for capital gains tax (CGT) concessions. These include:

  • 15-year exemption (completely disregarding CGT on business assets held for 15+ years)
  • 50% active asset reduction
  • Retirement exemption (up to $500,000 lifetime limit)
  • Small business rollover (deferring CGT when replacing assets)

The ATO guidelines allow home-based business owners to claim deductions for expenses like mortgage interest and electricity. These claims must match your business use percentage. Remember that capital gains tax implications might apply when selling your home.

Case Study: Maximising Tax Deductions for a Home-Based Business

Sarah runs a graphic design business from home with $400,000 annual turnover. She bought a new $18,000 computer system and invested $15,000 in her home office upgrade. Her business uses 30% of her home’s floor area, so she can claim:

  • $18,000 instant asset write-off for the computer system
  • $4,500 (30% of $15,000) for the office renovation
  • $900 annual home office expenses (30% of utilities)
  • $1,000 small business income tax offset


Sarah’s taxable income drops by $24,400, which saves her about $7,320 in tax (based on a 30% tax rate).

Tax Planning Strategies

Tax planning works best when you take action throughout the financial year rather than waiting until tax time. The right timing of your business transactions can help you legally pay less tax.

Smart management of when you receive income and pay expenses is a key strategy. 

Cash-based businesses should think about sending customer invoices after June 30 if they expect lower income next year. The opposite makes sense when higher income is expected next year—sending invoices before the financial year ends could help.

Your current year’s taxable income drops when you speed up deductible expenses before year-end. Here’s what you can do:

  • Pay expenses like rent, insurance or subscriptions early (up to 12 months ahead)
  • Buy needed business equipment before June 30
  • Put money into superannuation funds by mid-June (this ensures year-end processing)
  • Clear out bad debts that can’t be recovered


Your cash flow improves when you review June quarterly PAYG instalments. Businesses with decreased taxable income from previous years can change their instalment or get credits for tax paid in earlier quarters.

Small businesses need to review their structure regularly. Whether you operate as a sole trader, partnership, trust, or company is a big deal as it means that your tax position and planning options change.

Case Study: Smart Tax Planning for a Consultancy Business

Let’s look at James who runs a consultancy business and earns $90,000 yearly. His actions before June 30 include:

  1. Paying $6,000 upfront for six months of office rent
  2. Buying a $15,000 computer system with instant asset write-off
  3. Adding $20,000 to his superannuation
  4. Clearing $4,000 in bad debts


These moves cut his taxable income by $45,000 and save him about $13,500 in tax.

Good record-keeping proves your tax planning decisions are right. The ATO wants businesses to keep all receipts and deduction documents for five years.

Frequently Asked Questions

Small business owners often have questions about their tax obligations. Here are answers to common questions about Australian small business taxation in 2025.

What is the tax-free threshold for small businesses?

Sole traders can claim a tax-free threshold of $18,200. Companies must pay tax on all their earnings since they don’t get a tax-free threshold. Partnership income flows to individual partners who may use the threshold.

Do I need to register for GST with a turnover under $75,000?

Your business must register for GST once annual turnover hits $75,000. You can choose to register if you earn less than this amount. Taxi, limousine and ride-sourcing services need GST registration whatever their turnover. Businesses dealing mostly with GST-registered entities might benefit from voluntary registration.

Can I claim home office expenses as a small business?

Running your business from home lets you claim portions of mortgage interest, electricity, insurance, and operating costs. You should track your business usage percentage carefully. But note that these deductions could affect capital gains tax when you sell your home.

How often do I need to pay tax as a small business?

Small businesses lodge and pay their BAS every quarter. Payments are due by the 28th day after each quarter ends. Your superannuation guarantee contributions need quarterly payments too. The final quarter payment must reach by June 30 to count as tax deductions in the current financial year.

What happens if I miss the tax deadline?

The ATO charges penalties and interest for missed deadlines. They also apply failure to lodge on time (FTL) penalties. The ATO’s 2025 focus areas include contractor income omission, GST reporting changes from quarterly to monthly BAS, and small business boost measures. They want businesses to fix errors themselves before formal reviews begin.