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If you're a sole trader earning $100,000, you'll pay around $22,788 in tax. Run that same business as a company? You'll pay $25,000. Earn $150,000 as a sole trader? That's $39,838 in tax. As a company, it's $37,500.
(These examples assume an Australian resident individual, no tax offsets, no HELP/HECS debt, and the standard 2% Medicare levy.)
So, how much tax does a small business actually pay in Australia?
There is no single small business tax rate in Australia.
Your tax bill depends entirely on how your business is structured, and the difference can cost or save you thousands of dollars every year.
Most business owners don't realise their structure is costing them money until it's too late. We've spent over a decade at Darcy Bookkeeping & Business Services helping Australian small businesses work out what they're actually paying and where they can legally pay less. We are here to give you the real numbers, calculations, and practical strategies you need to understand your tax bill.
The Australian Taxation Office has specific definitions that determine which small business tax rates and concessions apply to you.
For most tax concessions, you're considered a small business if your aggregated turnover is less than $10 million. This threshold gives you access to benefits like the instant asset write-off. But for the lower company tax rate, different rules apply. Companies with an aggregated annual turnover of less than $50 million can access the 25% rate if they meet certain conditions.
The key point is that "aggregated turnover" includes the turnover of any connected entities or affiliates. If you own multiple businesses, you need to combine them.
Aggregated turnover includes:
If you operate multiple businesses, these amounts may need to be added together.
Small business tax concessions are not automatic. For companies in particular, a passive income test can disqualify you even if turnover is well below the threshold.
Once registered for GST, you must lodge Business Activity Statements (BAS), reporting taxable sales and claiming GST credits on eligible purchases.
Your business structure determines your tax obligations. Let's look at how small businesses pay tax under each structure:
You pay individual income tax rates on your business income, which range from 16% to 45% (plus 2% Medicare levy) depending on your total taxable income. Your business profits are added to any other income you earn, and the total is taxed progressively.
The partnership itself doesn't pay tax. Instead, each partner pays tax on their share of the net income at individual income tax rates.
Companies pay company tax at a flat rate of 25% or 30%, depending on whether they qualify as a base rate entity. This is separate from your personal tax.
The difference in tax outcomes between these structures can be massive. A business making $150,000 profit, structured as a sole trader, pays roughly $39,838 in tax. That same profit in a company paying the lower 25% company tax rate costs just $37,500. That’s a potential tax deferral of $2,337, depending on how profits are distributed.
Disclaimer: The figures and information below are generalisations; however, other factors may contribute to a different outcome.
If your company qualifies as a base rate entity for the 2024-25 financial year, you pay company tax at 25%. To qualify for this lower rate, your company must meet two conditions.
First, your aggregated turnover must be less than $50 million. Most small businesses in Australia easily meet this requirement. The second test is trickier; no more than 80% of your assessable income can be "base rate entity passive income."
Base rate entity passive income includes dividends (except non-portfolio dividends where you own 10% or more), interest income, rent, royalties, net capital gains, and certain trust distributions.
Let's say you run a trades business as a company. You make $180,000 from services and earn $20,000 interest. Your total assessable income is $200,000, and your passive income is just 10%. You qualify for the 25% rate and pay $50,000 in company tax.
When your company doesn't meet the base rate entity criteria, you pay the full company tax rate of 30%. This occurs when your aggregated turnover exceeds $50 million or when more than 80% of your assessable income is passive income.
If your company makes a $100,000 profit and qualifies for the 25% rate, your tax bill is $25,000. That same $100,000 profit taxed at 30% costs $30,000. The $5,000 difference compounds year after year.
Your eligibility is assessed annually. If you sell a major asset or change your income mix, you could find yourself paying the higher rate without realising why.
As a sole trader and small business owner, you don't pay a separate business tax on your net small business income. Your business profit is added to any other income, and the total is taxed at individual income tax rates.
For the 2024-25 financial year, Australian residents pay tax at these rates:
On top of these rates, you also pay the 2% Medicare levy on your taxable income.
Example:
A sole trader earning $80,000 pays:
Total income tax: $14,788
Medicare levy: $1,600
Total tax payable:$16,388
The crossover point at which a company structure starts to provide tax-planning advantages generally falls between $90,000 and $100,000 in profit, depending on how much income you need to withdraw personally. Below that, setup and compliance costs typically outweigh tax savings. Above it, you're likely leaving money on the table.
Here's how the tax liability compares at different profit levels:
| Annual Profit | Sole Trader Tax | Company Tax (25%) | Tax Difference (Assuming Profits Retained) |
| $50,000 | $6,788 | $12,500 | -$5,712 (sole trader better) |
| $100,000 | $22,788 | $25,000 | -$2,212 (sole trader better) |
| $150,000 | $39,838 | $37,500 | $2,337 |
| $200,000 | $60,138 | $50,000 | $10,137 |
Company tax is paid at the entity level. When profits are later paid to you as wages or dividends, personal tax may apply (with franking credits). The key advantage is timing and flexibility, not eliminating tax.
For 2024-25, small businesses with aggregated turnover under $10 million can immediately deduct the full cost of eligible assets costing less than $20,000. This applies to depreciating assets first used or installed ready for use between 1 July 2024 and 30 June 2025.
The benefit is timing. Instead of depreciating an $18,000 vehicle over several years, you deduct the entire cost this year. If you're a sole trader in the 30% bracket, that $18,000 deduction reduces tax payable upfront by $5,400. If you're a company paying 25%, it saves $4,500 at the company level.
Both new and second-hand assets qualify. You can claim multiple assets under this threshold in a single year.
The small business CGT concessions can save enormous amounts when you sell business assets or your own small business. There are four main concessions you can often use together.
The 15-year exemption provides a complete capital gains tax exemption for assets you've owned for at least 15 years if you're over 55 and retiring. A business owner selling their business for $600,000 after 15 years pays zero CGT if they qualify. That's potentially over $90,000 in tax saved.
The 50% reduction in active asset value halves the capital gain on active business assets. The retirement exemption lets you disregard up to $500,000 of capital gains over your lifetime. The small business rollover allows you to defer CGT when you sell one asset and acquire another.
To access these concessions, you generally need an aggregated turnover of less than $10 million or net assets of less than $6 million.
Start with your taxable income (revenue minus deductible expenses). Let's say your company generated $320,000 in revenue with $170,000 in deductible expenses. Your taxable income is $150,000.
Determine whether you're a base rate entity. Check your turnover is under $50 million and passive income is 80% or less of assessable income. Assuming you qualify for 25%, your company tax is $150,000 x 25% = $37,500.
Calculate your total assessable income from all sources. Let's say you made $85,000 from your business and $10,000 from part-time work. Your total is $95,000.
Subtract any allowable tax deductions to reach taxable income. If you have no further deductions, your taxable income remains $95,000.
Apply the progressive rates: $0 on the first $18,200, $4,288 on income from $18,201 to $45,000, and $15,000 on income from $45,001 to $95,000. Your total income tax is $19,288.
Add the 2% Medicare levy: $1,900.
Your basic income tax liability before offsets is $21,188.
Please note: This is a generalisation; other factors may lead to a different outcome.
If you're making under $60,000 in annual profit, remain a sole trader. Setup costs for a company exceed any tax savings.
Between $60,000 and $90,000 profit, benefits are marginal. Consider factors like asset protection rather than tax alone.
For profits above $90,000, the company structure typically delivers meaningful tax savings. At a $150,000 profit, this can reduce the upfront tax payable by roughly $2,300, depending on how profits are distributed.
If you've had a high-income year, consider deferring invoicing work completed in June until July. That pushes income into the next financial year.
For companies, retaining profits rather than distributing dividends defers personal tax. The company pays 25% or 30% tax, but you don't pay any additional personal tax until you receive dividends.
This is legitimate tax planning, not avoidance. The key distinction: planning uses legal strategies within the rules. Avoidance involves artificial arrangements and is illegal.
This is the mistake we see most often. Poor record-keeping makes it impossible to separate legitimate business deductions from personal spending, and the ATO routinely denies these claims during audits. Keep your business and personal expenses completely separate from day one.
Once your turnover hits $75,000, you have 21 days to register for goods and services tax. Miss this deadline, and the ATO can backdate your GST obligations, meaning you'll owe GST on sales where you didn't collect it from customers. That money comes straight out of your pocket. You'll also miss out on claiming GST credits and input tax credits on your business purchases.
Your family holiday isn't a legitimate tax deduction, even if you checked emails twice. Your everyday suits aren't deductible. Everyday coffees and meals are usually private and not deductible, even if you talk business while you’re there. These incorrect claims trigger audits and create problems you don't need.
Missing your quarterly PAYG instalments doesn't just create cash flow issues. The ATO charges a general interest charge per annum, which changes quarterly and has been around 10%-11% in recent periods on late payments, plus penalties.
The ATO requires you to keep records for five years. Without proper records, you can't substantiate your deductions if audited. Switch to digital record-keeping with accounting software instead of keeping shoeboxes of receipts.
You need an accountant when your turnover approaches or exceeds $100,000. At this level, potential tax savings from proper tax management and tax compliance support easily exceed accounting fees, especially as your business growth accelerates.
You're choosing or changing your business structure. This decision has decades of financial consequences for your business finances.
You're selling your business or disposing of major assets. CGT events can create large tax bills, but small business concessions can significantly reduce them if structured correctly.
At Darcy Bookkeeping & Business Services, we specialise in small business income tax strategy, not just tax compliance. Proactive tax planning means working with us throughout the year to structure your business operations to optimise tax outcomes.
The return on investment from professional tax advice is substantial. A client earning $150,000 who restructures from sole trader to a company can reduce their upfront tax payable by roughly $2,300 annually, depending on how profits are distributed.
Small business tax rates in Australia vary dramatically by business structure, ranging from 25% for qualifying companies to 45% (plus Medicare levy) for high-earning sole traders. The strategic choice of business structure can save thousands annually once your profit exceeds approximately $90,000.
Your action steps are clear. Calculate your current tax liability, identify which small business tax concessions you're not claiming, and review whether your business structure still makes sense for your profit level.
Tax laws change regularly. The instant asset write-off threshold of $20,000 has been extended into the 2025–26 financial year for eligible small businesses. Because these rules are reviewed frequently, it’s important to confirm eligibility and thresholds each year. Proactive tax planning helps ensure you can adapt to changes as they occur.
If you're ready to ensure you're not overpaying tax on your small business income, get in touch with Darcy Bookkeeping & Business Services. We'll review your current structure, calculate what you're actually paying, and show you exactly where you can save.
It depends on your business structure. Companies pay either 25% (for base rate entities) or 30%. Sole traders pay progressive individual income tax rates from 16% to 45%, plus 2% Medicare levy. A business making $150,000 profit could pay anywhere from $37,500 (company at 25%) to $39,838 (sole trader).
Sole traders can earn up to $18,200 before paying income tax (the tax-free threshold). Companies pay tax on every dollar of profit at either 25% or 30%. There's no tax-free threshold for companies. All businesses can use tax deductions to reduce their taxable income.
As a sole trader, you pay individual income tax rates. For 2024-25, that's 16% on income 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. Add 2% Medicare levy. A sole trader earning $80,000 pays approximately $16,388 total tax.
