Running a small business in Australia comes with plenty of moving parts, and tax is usually high on the list. One of the most important things to understand is the company tax rate, which is the percentage of profit your company pays to the Australian Taxation Office (ATO).
For many business owners, knowing how this rate works can mean better planning, smoother cash flow, and fewer unwelcome surprises at tax time.
For the 2025-26 financial year, the headline figures are simple. Most large companies pay 30%, while eligible small businesses benefit from a reduced 25% rate. This two-tier system has been in place for several years and continues to apply now.
Given that small businesses make up more than 98% of all Australian businesses, the lower rate affects the majority of companies in the country.
In this guide, we’ll explain how the company tax rate works, who qualifies for the lower rate, how to calculate your company tax, when to pay it, and practical ways to manage your tax bill. We’ll also compare Australia’s system with other countries and wrap up with a detailed FAQ section that covers common concerns.
What Is the Company Tax Rate in Australia?
The company tax rate is a flat percentage applied to a company’s taxable profits. Unlike individual income tax, which is progressive with brackets, company tax uses a single rate once profits are calculated.
The current figures are:
- 30% for most companies
- 25% for small businesses that meet eligibility rules
Corporate tax is one of the biggest sources of government revenue, contributing around 17% of Australia’s total tax receipts.
For small businesses, understanding where they fit into this structure can have a real impact on planning, growth, and profitability.
Note: Company tax rates and eligibility criteria are determined for specific income years, and may change from one income year to the next.
Small Business vs Large Company Tax Rates (2025-26)
Australia applies a two-tier company tax system. The idea is to give genuine small and medium businesses a financial break, while keeping the standard 30% rate for big companies or those earning mainly passive income. The aggregated turnover threshold and turnover threshold are key criteria for determining eligibility for the lower tax rate.
The following table summarizes the threshold tax rate and eligibility criteria for small business entities and larger companies:
Company Type | Tax Rate | Eligibility Criteria |
Small Business Company (Base Rate Entity) | 25% | Aggregated turnover under $50m; no more than 80% of income is passive |
Large/General Company | 30% | Turnover $50m or above, or fails the passive income test |
This structure means that most actively trading small and medium companies qualify for 25%. The threshold of $50 million in turnover is relatively generous, so plenty of medium-sized firms benefit. However, if your company grows beyond that point, you move into the 30% bracket.
Larger companies are subject to the full company tax rate, and trading income is a key factor in qualifying for the lower rate. Even if your turnover is below $50m, you may still pay 30% if your business earns mostly passive income.
Qualifying for the 25% Small Business Company Tax Rate
The ATO uses the term Base Rate Entity for companies eligible for the 25% rate. To qualify, you must meet two conditions:
- Company’s aggregated turnover under $50m: The company’s aggregated turnover includes your company’s income plus that of any connected or related entities. This ensures that income from all related entities is counted, preventing larger groups from splitting into smaller companies just to access the lower rate.
- Base rate entity passive income 80% or less: No more than 80% of your total assessable income can come from rate entity passive income sources such as rent, interest income, dividends, royalties, or net capital gains. This means the proportion of passive income, including rental income and interest income, must not exceed the 80% threshold for your company to be considered a base rate entity.
Example:
- A café company earns $900,000 in turnover, with only $20,000 of that from bank interest income. It qualifies for 25% because the company’s aggregated turnover is well under $50m and passive income, such as interest income, is a tiny share of total assessable income.
- A small investment company with $500,000 turnover but $450,000 in dividends and $30,000 in rental income would pay 30%, since passive income (including dividends and rental income) exceeds 80% of the total assessable income.
Eligibility is checked each financial year, often based on figures from the previous income year. That means your company could qualify one year but not the next if income patterns or turnover change. It’s worth monitoring your figures carefully, particularly if you are near either threshold.
How Company Tax Is Calculated
Company tax is charged on taxable income, which is your assessable income minus deductions.
- Total Assessable income includes sales, service fees, and other business revenue.
- Deductions cover allowable expenses such as salaries, rent, supplies, depreciation, and business travel.
The formula is straightforward:
Total Assessable Income – Deductions = Taxable Income
Taxable Income × Company Tax Rate = Tax Payable
Example:
A small business with $100,000 taxable income pays:
- At 25% rate = $25,000
- At 30% rate = $30,000
That $5,000 difference can be significant for smaller businesses.
Companies can also carry forward tax losses, meaning if you make a loss one year, it can reduce taxable income in future years, provided certain continuity tests are met.
When and How Do Companies Pay Tax?
Every company must lodge an annual tax return with the ATO. The standard deadline is 31 October, though most small companies using a registered tax agent can access later lodgement dates, often up to May of the following year.
In addition to the yearly return, many companies make Pay As You Go (PAYG) instalments. These are quarterly pre-payments of tax, based on your last year’s income or your own estimates. PAYG prevents you from facing one large bill at the end of the year.
Once the return is lodged, the ATO issues a notice of assessment, showing how much tax is due after accounting for any PAYG instalments already made. Payment is usually electronic via BPAY, credit card, or bank transfer.
Late payments can lead to interest charges, and failing to lodge on time may result in penalties. Keeping track of key dates and setting aside funds regularly helps avoid these issues.
Tax Planning Tips for Small Businesses
There are practical ways to reduce your tax bill legally and keep more profit in the business. Some strategies include:
- Claim every deduction: Keep receipts and records for all business expenses, no matter how small.
- Use small business concessions: For example, the instant asset write-off or simplified depreciation rules (depending on availability in 2025-26) let you deduct asset purchases more quickly.
- Manage timing: If profits are high, you might bring forward necessary expenses before year-end. If income will fall next year, it may be better to defer some revenue.
- Plan owner payments: Company owners often take a mix of salary and dividends. Salary is deductible to the company, dividends are not, but dividends come with franking credits. Structuring this balance with advice can improve tax outcomes.
- Separate passive income: If your company is approaching the 80% passive income cap, consider keeping investments in another entity.
- Plan for growth: Moving from 25% to 30% means more tax, but it usually reflects higher profits. Factor this into your financial planning.
Professional advice is highly recommended. Each business is different, and an accountant can ensure you apply the right mix of strategies.
How Australia Compares Internationally
Australia’s top corporate tax rate of 30% is higher than some comparable economies:
- New Zealand: 28% flat corporate rate
- United Kingdom: 25% as of 2025, with some variations for smaller profits
- United States: 21% federal corporate rate, though state taxes can apply on top
Australia’s small business rate of 25% brings it closer to international averages, but the standard 30% remains at the higher end among developed countries. This is one reason debates continue about whether lowering corporate tax more broadly would boost competitiveness.
Key Takeaways
- The Australian company tax rate is 30% for most businesses, but 25% applies to small businesses that qualify as Base Rate Entities.
- To qualify, turnover must be under $50 million and passive income must be no more than 80% of total income.
- Tax is applied to taxable income, calculated as assessable income minus deductions.
- Companies must lodge annual returns and often pay quarterly PAYG instalments.
- Small businesses can manage their tax bill with planning strategies such as maximising deductions, timing expenses, and structuring owner payments.
- Internationally, Australia’s 30% rate is relatively high, but the 25% small business rate is more competitive.
FAQs
Q: What is the company tax rate for the 2025-26 financial year?
It is 30% for most companies, and 25% for Base Rate Entities with turnover under $50m and no more than 80% passive income (ATO).
Q: How do I know if my business qualifies for the 25% rate?
Check your aggregated turnover and income mix. If turnover is under $50m and passive income is no more than 80%, you likely qualify.
Q: Do sole traders or partnerships use the company tax rate?
No. They are taxed at the individual owner’s personal income tax rates. However, they may be eligible for the small business income tax offset, worth up to $1,000.
Q: What happens if my company makes a loss?
No tax is payable. Losses can usually be carried forward to offset future profits, subject to ownership and continuity rules.
Q: When are company tax returns due?
Normally by 31 October, but using a registered tax agent usually provides an extended deadline. Payment is required by the due date shown on your notice of assessment.
Q: Will the company tax rate change soon?
As of August 2025, there are no announced changes. The 25% rate for small businesses was phased in over several years and has been stable since 2021.
Q: How do dividends interact with company tax?
Dividends carry franking credits for the company tax already paid. Shareholders then declare both the dividend and the credit on their personal tax return, ensuring income is ultimately taxed at their personal rate without double taxation.
