How Much Tax Does a Small Business Pay in Australia?

Company tax rates: 25% or 30%

A company pays the lower 25% rate if it is a base rate entity for the year. That requires two things: aggregated turnover under $50 million, and no more than 80% of its assessable income being base rate entity passive income. Passive income includes dividends and franking credits, rent, royalties, most interest and net capital gains. These settings have applied since 2021-22.

A company that fails either test pays the full 30% rate. A small investment company that mostly earns rent or dividends can therefore pay 30% even with very low turnover.

Company tax is not the end of the story for the owner. Profits paid out as dividends are taxed again in the shareholder's hands at personal rates, with a credit for the company tax already paid through franking. The rate used for franking is based on the previous year's turnover and passive income, which can create a mismatch when a company moves between 25% and 30%.

Sole trader tax rates for 2025-26 and 2026-27

A sole trader's business profit is added to their other income and taxed at personal rates. The brackets are unchanged between the two years, but from 1 July 2026 the rate on income between $18,201 and $45,000 fell from 16% to 15%. It falls again to 14% from 1 July 2027.

The 2026-27 resident rates are nil up to $18,200, 15% from $18,201 to $45,000, 30% from $45,001 to $135,000, 37% from $135,001 to $190,000 and 45% above $190,000. In 2025-26 the rates were the same except for 16% in the second bracket. The Medicare levy of 2% is added on top in both years.

• $0 to $18,200: nil
• $18,201 to $45,000: 16% in 2025-26, 15% in 2026-27
• $45,001 to $135,000: 30%
• $135,001 to $190,000: 37%
• $190,001 and over: 45%

The small business income tax offset

Sole traders, and individuals who receive a share of net small business income from a partnership or trust, can get the small business income tax offset if the business's aggregated turnover is under $5 million. Companies cannot claim it.

The offset is 16% of the part of your income tax that relates to your net small business income, capped at $1,000 a year. The ATO works it out from your tax return and shows it on your notice of assessment. A net business loss gives no offset.

Worked example: a sole trader earning $80,000 in 2026-27

Say a sole trader's only income is $80,000 of net business profit in 2026-27. Income tax is $4,020 on the first $45,000, plus 30% of the $35,000 above that, which is $10,500. Total income tax is $14,520.

The small business income tax offset is 16% of $14,520, which is $2,323, but it is capped at $1,000. The Medicare levy is 2% of $80,000, which is $1,600. The total is $14,520 minus $1,000 plus $1,600, which is $15,120.

In 2025-26 the same profit would have attracted income tax of $14,788, because the second bracket was taxed at 16% rather than 15%. If the same $80,000 profit were earned in a base rate entity company instead, company tax would be 25% of $80,000, or $20,000, but the owner would pay further tax when the profit is paid out, so the comparison depends on how much is drawn and when.

When to get help

The headline rate rarely tells you what you will actually pay. Structure, how profits are drawn, and which offsets apply all change the answer.

Those choices are easiest to make before 30 June, not after. Acquire Strategic Accounting in Brisbane works through the structure and tax plan before year end, when there is still time to act.