Small Business Tax in Australia

Australia taxes small businesses differently depending on legal structure. A proprietary limited company (Pty Ltd) pays the company tax rate -- either 25% or 30% -- while sole traders, partnerships, and trusts have their income taxed at the individual owner's marginal rate. The Australian Taxation Office (ATO) administers all federal taxes including company income tax, Goods and Services Tax (GST), Pay As You Go (PAYG) instalments, and capital gains tax (CGT). Verification of current thresholds should always be confirmed directly with the ATO at ato.gov.au or with a registered tax agent.

What is the company tax rate for small businesses in Australia?

The ATO operates a two-rate company tax system for the 2025-26 income year [SC1]. A company pays 25% if it qualifies as a base rate entity (BRE), and 30% otherwise. To qualify as a BRE, two conditions must both be satisfied:

1. The company's aggregated turnover for the income year is less than AUD 50 million.
2. No more than 80% of the company's assessable income is base rate entity passive income (BREPI).

BREPI includes interest, dividends, rent, royalties, and net capital gains. Income from active trading does not count as BREPI, so most operating Pty Ltds naturally satisfy the 80% test. Aggregated turnover includes the company's own turnover plus the turnover of all connected entities and affiliates -- groups with multiple related Pty Ltds must aggregate across the group.

Sole traders, partnerships, and trusts do not pay company tax. Each individual owner or beneficiary instead reports their share of business income on their personal tax return and pays tax at their marginal rate, as set out in the table below.

All rates above exclude the 2% Medicare levy, which applies to most resident taxpayers. Sole traders with aggregated turnover under AUD 5 million may also be eligible for the Small Business Income Tax Offset (see below) [SC5].

When does GST registration become mandatory?

Business owners must register for Goods and Services Tax (GST) once their current or projected 12-month GST turnover reaches AUD 75,000 [SC2]. Registration is required within 21 days of crossing the threshold. The GST rate is a flat 10% added on top of the sale price. Registered businesses:

• Collect GST from customers and remit it to the ATO.
• Claim GST credits (input tax credits) on business purchases.
• Report via a Business Activity Statement (BAS) -- quarterly by default for businesses under AUD 20 million turnover, monthly for AUD 20 million and above.

Not-for-profit organisations face a higher threshold of AUD 150,000. Registration below the AUD 75,000 threshold is voluntary. Ride-share and taxi drivers must register regardless of turnover. Businesses that voluntarily register must generally remain registered for at least 12 months.

How do PAYG instalments work for small businesses?

Pay As You Go (PAYG) instalments are the mechanism by which the ATO collects income tax on business and investment income progressively throughout the year rather than as a single lump-sum payment at tax time [SC3]. Individuals and trusts automatically enter the PAYG instalment system when their latest tax return shows instalment income of AUD 4,000 or more AND tax payable of AUD 1,000 or more.

For the 2025-26 income year, the ATO has set the GDP adjustment factor at 4% [SC3]. This factor increases the instalment amounts calculated under the GDP-adjusted amount method to account for economic growth -- meaning quarterly instalment amounts for 2025-26 are 4% higher than the prior year baseline. Businesses that expect lower-than-normal income can vary their instalment amounts using ATO Form T variation -- deliberate underpayment that results in tax shortfall at return time may attract an interest charge.

Most small businesses pay quarterly instalments by the 28th of October, January, April, and July. Companies are typically placed in the instalment system after their first year of operation. PAYG instalments are offset against the final tax payable when the annual income tax return is lodged -- overpayment is refunded and underpayment is collected.

What are the Small Business CGT concessions?

Subdivision 152 of the Income Tax Assessment Act 1997 provides four concessions on capital gains from the disposal of active business assets [SC4]. To access the concessions, the entity must satisfy at least one of two threshold tests:

• Small business entity test: aggregated turnover of less than AUD 2 million, OR
• Maximum net asset value test: the net value of CGT assets of the entity and its connected entities does not exceed AUD 6 million.

The four concessions are:

1. 15-year exemption -- complete CGT exemption where the asset has been continuously owned for at least 15 years, the individual is aged 55 or over, and the disposal is connected with retirement or permanent incapacitation.
2. 50% active asset reduction -- 50% reduction of the capital gain. Can stack with the general 50% individual CGT discount for an effective 75% reduction of the underlying gain.
3. Retirement exemption -- exempts up to a lifetime limit of AUD 500,000. Individuals under 55 at the time of the choice must contribute the exempt amount to superannuation.
4. Small business rollover -- defers the capital gain by rolling it into a replacement active asset acquired within two years of the disposal.

The active asset test requires the asset to have been used or held ready for use in a business carried on by the entity for at least half of the ownership period (or 7.5 years where owned for more than 15 years). These concessions are the principal exit-planning consideration for owner-operated businesses. See the Australia country overview for the broader Australian tax framework.

What is the Instant Asset Write-Off and how does it apply in 2025-26?

The Instant Asset Write-Off (IAWO) allows eligible small businesses to immediately deduct the business portion of the cost of a depreciating asset in the income year it is first used or installed ready for use, rather than spreading the deduction over the asset's effective life [SC6].

For the 2025-26 income year (1 July 2025 to 30 June 2026), the IAWO threshold is AUD 20,000 per asset, extended by the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025. Eligibility conditions:

• Aggregated annual turnover of less than AUD 10 million.
• The business must use the simplified depreciation rules for small business.
• The asset must cost less than AUD 20,000 (the threshold applies per individual asset, so multiple assets can each be written off immediately).
• The asset must be first used or installed ready for use between 1 July 2025 and 30 June 2026.

Assets costing AUD 20,000 or more are pooled in the small-business general pool and depreciated at 15% in the first year and 30% per year thereafter. Businesses outside the simplified depreciation rules use general prime-cost or diminishing-value methods. For assets above the IAWO threshold, the write-off does not apply.

What is the Small Business Income Tax Offset?

The Small Business Income Tax Offset (SBITO), sometimes called the unincorporated small business tax discount, reduces the income tax payable by eligible individuals on their net small business income [SC5]. For 2025-26, the offset rate is 16% of the tax payable attributable to net small business income, capped at a maximum of AUD 1,000 per individual per year.

Eligibility conditions:

• The business must have aggregated turnover of less than AUD 5 million.
• The individual must be a sole trader carrying on a small business, OR receive a share of net small business income from a partnership or trust.
• Companies are not eligible -- the offset applies only to unincorporated business structures.

The ATO calculates the offset automatically when the tax return is lodged. The offset directly reduces tax payable -- it is not refundable (i.e., it cannot reduce tax below zero to generate a cash refund). The AUD 1,000 cap means high-income sole traders receive proportionally less benefit relative to their tax payable.

For specific application of these rules to your business structure, consult a registered tax agent or CPA Australia member listed in the Australia tax-pros directory. This page summarises publicly available ATO information and does not constitute advice.