What is the company tax rate in Australia in 2026
Australia runs a two-tier corporate tax rate, set out in the Income Tax Rates Act 1986. For the 2025–26 income year:
- 25% for companies that qualify as a "base rate entity" (most small and mid-sized trading companies)
- 30% standard for everyone else, including larger companies and those earning mostly passive income
That five-percentage-point gap is bigger than it looks once you put a number on it.
A company with AUD $300,000 of taxable income pays AUD $75,000 in tax at 25%, versus AUD $90,000 at 30%, a AUD $15,000 difference, every single income year. That's the entire reason eligibility is worth checking properly rather than assuming.
How is company tax in Australia calculated
Once you know your company tax rate in Australia, the calculation is mechanical:
Assessable income - allowable deductions = Taxable income × your company tax rate (25% or 30%)
Assessable income is the revenue from trading, plus other income such as interest, dividends, or asset sales. Allowable deductions are costs incurred in earning that income.
Take a design agency turning over AUD $420,000 in the 2025–26 income year. After salaries, software subscriptions, rent, and other deductible costs of AUD $310,000, taxable income is AUD $110,000. As a base rate entity, tax payable is AUD $110,000 × 25% = AUD $27,500.
The same AUD $420,000 turnover with AUD $50,000 less in claimed deductions pushes taxable income up to AUD $160,000 and tax payable to AUD $40,000. Getting your deductions right (more on this below) isn't a compliance afterthought. It's the single biggest lever on this number that's actually within your control.
Before asking "what rate do I pay," ask "is my taxable income figure actually accurate?" That's where the real movement happens.
Base rate entity explained: The two tests that set your rate
Base rate entity is a label that the ATO applies to each income year based on two tests. Pass both, and you're taxed at 25%. Fail either, and you're back to 30%.
Test 1: Aggregated turnover under the AUD $50 million threshold
Aggregated turnover isn't just your company's own revenue. It's your turnover plus the turnover of any connected entities and affiliates, related companies, trusts, or businesses under common control.
This is the test founders get wrong most often, not because the threshold is hard to understand, but because they forget to add in a related entity. A trading company turning over AUD $35 million that's connected to a property-holding company turning over AUD $20 million has an aggregated turnover of AUD $55 million, over the threshold, even though neither entity looks large on its own.
Test 2: No more than 80% passive income
Even under the turnover threshold, if more than 80% of your assessable income is Base Rate Entity Passive Income (BREPI), dividends, rent, interest, royalties, or net capital gains from non-trading assets, you don't qualify. This test exists to keep the concessional rate for genuinely active businesses, not investment vehicles dressed up as trading companies.
Worked example: A small consultancy earns AUD $480,000 from client work and AUD $20,000 from renting out a spare office floor. Passive income is AUD $20,000 of AUD $500,000 total, that is, 4%, well under the 80% cap. Turnover is nowhere near AUD $50 million. It qualifies for 25%.
Quick tip: Run both tests every income year, not just once. Your turnover and income mix can shift you between 25% and 30% from one year to the next. Base rate entity status is reassessed annually, not locked in permanently.
Sole trader, partnership, or company: Which pays less company tax in Australia
Should your business even be a company for tax purposes?
Sole traders and partners don't pay a separate business tax rate at all. Business profit is simply added to personal income and taxed at individual marginal rates, starting at 0% under the AUD $18,200 tax-free threshold, then climbing in bands up to 45%, plus the Medicare levy.
A company, by contrast, pays a flat 25% or 30% on profit, regardless of how much you personally draw out.
Below roughly AUD $90,000–$100,000 in profit, staying a sole trader is usually cheaper once you account for company set-up and compliance costs.
Above that range, the company tax rate in Australia increasingly wins but only at the entity level. Pulling profit out as wages or dividends triggers personal tax on top, which is where franking credits come in (a topic substantial enough for its own article).
Company tax incentives in Australia
Beyond the headline rate, a handful of incentives meaningfully change what founders pay but only if you check eligibility before lodging, not after.
R&D tax incentive
A tax offset for eligible R&D expenditure. Companies with aggregated turnover under AUD $20 million may receive a refundable offset at the corporate tax rate plus 18.5%; larger companies may receive a non-refundable offset. The R&D offset needs registration with AusIndustry before lodgement; the asset write-off needs the asset to be in use within the income year, not just purchased.
Eligibility: Minimum eligible R&D spend is AUD $20,000 for 2025–26. Gambling and tobacco-related activities are excluded from income years starting on or after 1 July 2025.
Small business tax concessions
Access to simplified depreciation, immediate deduction for eligible prepaid expenses up to 12 months in advance, and reduced compliance requirements.
Eligibility: Access generally requires an aggregated turnover under AUD $10 million.
Startup loss refundability
From 1 July 2028, a proposed refundable tax offset for eligible new companies with tax losses in their first two years.
Eligibility: Applies to new companies with an aggregated turnover under AUD $10 million. The refund is calculated against FBT and wage withholding tax paid in the loss year.
Foreign income tax offset
Australian businesses earning income overseas and paying foreign tax. A credit against Australian tax payable to reduce double taxation on the same foreign income.
Eligibility: The business must have paid, or be deemed to have paid, foreign tax, and the related foreign income must be included in Australian assessable income.
Deductions founders commonly miss and the ones that get rejected
Most deduction guides list the obvious: salaries, rent, utilities, professional fees, and depreciation. The bigger issue is the boundary between what's claimable and what merely looks claimable.
Generally claimable: Operating costs incurred in earning income, capital asset depreciation, business-related travel (with records), interest on business loans, and bad debts previously included in assessable income.
Commonly disallowed: Private or domestic expenses, entertainment costs, fines and penalties, the GST component of a purchase already claimed as a GST credit, and expenses tied to income that isn't part of normal trading activity.
The grey area that catches people out is mixed-use assets like a vehicle, a home office, a phone plan used for both business and personal purposes. The ATO doesn't reject the claim outright; it expects accurate apportionment, backed by records.
Tax calendar: When is your money deducted
Most companies pay tax through PAYG (pay-as-you-go) instalments across the income year, not in one lump sum at lodgement:
- Quarterly instalments are the default for most small and mid-sized companies, due 28 days after each quarter
- Monthly instalments are required once the instalment income exceeds AUD $20 million
- Lodgement deadlines vary depending on whether you lodge directly or through a registered tax agent; self-lodgers generally face earlier deadlines than agent-lodged returns
One change worth flagging for cash-flow planning: from 1 July 2025, the ATO's general interest charge on late or unpaid tax is no longer tax-deductible. A late payment now costs more, after tax, than it used to, which makes forecasting instalment dates as important as forecasting revenue.
Takeaway: Map your PAYG instalment dates against your cash-flow forecast at the start of each income year, not when the instalment notice lands. A business account that gives visibility over upcoming outflows, not just your current balance, makes this far less of a scramble.
When to file your company tax return: Key dates for the 2025–26 income year
Missing an ATO lodgement deadline triggers a Failure to Lodge (FTL) penalty of AUD $330 per 28-day period, up to AUD $1,650, plus the General Interest Charge (currently 11.38% per annum) on any unpaid business tax. Knowing the dates in advance is the simplest way to avoid both.
Here are the key lodgement and payment dates for Australian companies in the 2025–26 income year:
[Table:1]
If you missed an earlier 2025–26 BAS, PAYG, or company tax return deadline, do not wait for the next cycle to fix it. Late lodgement penalties are charged per 28-day period, and unpaid tax can also attract the General Interest Charge.
The practical move is to lodge the overdue form, pay what you can, and speak to the ATO or your registered tax agent about payment options if cash flow is tight.
Quick tip: Map remaining lodgement and payment dates against your bank balance, PAYG instalments, GST obligations, and supplier payments before the notices arrive.
Other taxes Australian businesses must pay
- GST: 10% on most goods and services. Mandatory registration once your aggregated turnover exceeds AUD $75,000 per year. Reported via your BAS.
- Withholding tax: Two types with PAYG Withholding on wages paid to local employees, and Non-Resident Withholding Tax on dividends, interest, and royalties paid outside Australia. The liability sits with you if you get it wrong.
- Fringe Benefits Tax (FBT): 47% on the grossed-up value of non-cash employee benefits — company cars, paid parking, low-interest loans. Runs 1 April to 31 March, not the standard income year.
- Payroll tax: State and territory-level, with different rates and thresholds per jurisdiction. If you operate across multiple states, each one applies separately.
- Customs and excise duties: Imports may attract duties up to 5%. Alcohol, tobacco, fuel, and petroleum attract excise duties on top.
- Wine Equalisation Tax (WET): 29% on wholesale wine value, plus GST. Applies to producers, wholesalers, and importers.
- Capital gains tax (CGT): Not filed separately, it's calculated within your annual company tax return.
Managing your tax obligations starts with clean financials
Australia's corporate tax framework rewards businesses that maintain accurate, well-organised records throughout the year, not just at lodgement. Every deduction claimed, every instalment forecasted, and every incentive applied depends on the integrity of your financial data.
Aspire's accounting automation integrates directly with Xero and QuickBooks, keeping your expenses categorised and your records audit-ready in real time, so that when tax obligations fall due, your numbers are already in order.
FAQs
1. What is the small business tax rate in Australia?
Most small businesses structured as companies pay a 25% corporate tax rate, provided they qualify as a base rate entity- aggregated turnover under AUD $50 million and no more than 80% passive income. Sole traders don't pay a separate business tax rate; profit is taxed at individual marginal rates instead.
2. How much tax does a small business pay in Australia?
It depends on structure. A company paying 25% on AUD $150,000 of taxable income pays AUD $37,500. A sole trader on the same profit pays approximately AUD $39,800 under individual rates. The gap widens significantly above AUD $150,000 in favour of the company rate.
3. What is business income tax in Australia?
It's the tax your company pays on its taxable income or what's left after deducting allowable expenses from total revenue. The rate is either 25% or 30%, depending on your eligibility. It's a separate obligation from GST, payroll tax, and FBT.
4. Do small businesses pay the same tax rate as large corporations?
No. If your aggregated turnover is under AUD $50 million and you meet the base rate entity tests, you pay 25%. Large corporations that don't qualify pay 30%. Same tax system, different rate and the difference is worth checking every year.
5. Is business income tax the same as personal income tax for sole traders?
No. Sole traders don't have a separate business income tax. Their business profit is treated as personal income and taxed at individual marginal rates — starting at 19% above the AUD $18,200 threshold and climbing to 45% at higher income levels, plus the Medicare levy.
6. How much tax does a company pay on AUD $100,000 profit in Australia?
AUD $25,000 if you're a base rate entity taxed at 25%. AUD $30,000 if the standard 30% rate applies. That AUD $5,000 difference is why confirming your eligibility each income year is worth doing before your return is lodged, not after.
7. What reduces business income tax in Australia?
Allowable deductions like salaries, rent, depreciation, interest on business loans, directly reduce your taxable income before the rate is applied. Incentives such as the R&D tax offset and the AUD $20,000 instant asset write-off can reduce the tax payable itself. Both require proper documentation and, in some cases, registration before lodgement.
.jpeg)
.jpeg)
.jpeg)
