Small Business Tax Rate: How Much Tax Does a Small Business Pay in Australia?

Anitra Issa

Running a small business in Australia means managing day-to-day operations, looking for new opportunities, and working to grow. The last thing you want to do is spend hours trying to figure out the tax rate for a small business or whether you're taking advantage of all the deductions you're entitled to. This blog post will break it down so you can focus on what really matters – your actual work.

What Defines a Small Business in Australia?

A small business in Australia is generally classified as one that employs fewer than 20 people. According to the Australian Bureau of Statistics (ABS), 97% of businesses in Australia fall into this category.

Here’s a quick breakdown of small businesses categorisations:

Non-employing business: Sole trader
Micro-business: 1-4 employees
Small business: 5-19 employees
Nano business: Earning less than $75,000 annually

Small Business Tax Rate in Australia

In Australia, the company small business tax rate is 25%, which is lower than the personal income tax rate for many in the workforce. This is intentional as it encourages entrepreneurs to start businesses by allowing them to keep more of their earnings and reinvest in their ventures. So, how much tax does a small business pay in Australia? The answer depends on several factors, including whether the business is structured as a sole proprietorship, partnership, or company, as well as federal tax regulations that apply to all businesses nationwide.

Understanding Business Structures and Their Tax Implications

Sole Trader Tax Rate for the 2023-24 Financial Year in Australia

As a sole trader in Australia, your business income is treated as personal income. You will pay tax at individual income tax rates.
Sole traders do not pay a separate business tax. Instead, they pay tax on their share of the business profits.
This means you will pay tax based on the standard individual tax brackets as shown in the table below, starting with a tax-free threshold of $18,200.
In addition to these rates, an additional 2% Medicare levy generally applies to taxable income.

Taxable Income	Tax on This Income
$0 – $18,200	Nil
$18,201 – $45,000	19 cents for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37 cents for each $1 over $120,000
Over $180,000	$51,667 plus 45 cents for each $1 over $180,000

Partnership Taxation for the 2023-24 Financial Year in Australia

In a partnership, the business itself does not pay tax. Instead, each partner pays taxes individually on their share of the partnership’s income.
This income is added to any other personal income the partner has, and it is taxed using the individual tax brackets, (as shown in the table above.)
Each partner is entitled to the $18,200 tax-free threshold, allowing them to reduce taxable income up to that amount.
Each partner is typically liable for a 2% Medicare levy on their taxable income.
Using this structure can be beneficial for sharing income across partners, especially if their individual incomes fall within lower tax brackets. This can help reduce the overall tax burden.

Trust Income Taxation in Australia for the 2023-24 Financial Year in Australia

In a trust structure, income that the trust generates is distributed to beneficiaries. Each beneficiary is responsible for paying tax on their share of the income.
Beneficiaries are taxed individually according to their personal income tax rates.
Trusts allow income to be distributed among beneficiaries, which can provide flexibility for tax planning.
Managing tax obligations in a trust structure can be more complex, as it may involve regular distributions and potentially detailed record-keeping.
Each beneficiary is responsible for their own tax, including applying the Medicare levy as applicable.
Trusts offer tax advantages by allowing multiple beneficiaries to share income, often making them a useful structure for families or businesses.

Small Business Tax Obligations

As a small business owner, you’ll encounter various taxes based on your income, revenue, and business structure. Here are the four main types of taxes you’ll need to understand:

Goods and Services Tax (GST): A 10% tax on most goods and services. If your annual revenue exceeds $75,000, you must register for and charge GST.
Fringe Benefits Tax (FBT): This tax applies to non-salary benefits like company cars or entertainment provided to employees. If these benefits exceed $2,000, you’ll need to pay FBT.
Payroll Tax: If you have employees, you’ll likely have payroll tax obligations. Payroll tax rates vary by state and territory, with different thresholds and rates. Here’s an overview of the payroll tax rates and thresholds for each state and territory for the 2023-2024 financial year:

State/Territory	Payroll Tax Rate	Annual Payroll Threshold
QLD	4.75% (standard) / 4.95% (for businesses paying over $10 million)	$1.3 million
NSW	5.45%	$1.2 million
VIC	4.85% (standard) / 1.2125% (regional)	$700,000
SA	4.95%	$1.5 million
WA	5.5%	$1 million
TAS	4%	$1.25 million
ACT	6.85%	$2 million
NT	5.5%	$1.5 million

Want to learn more about GST? Read our blogs where we go into more detail about whether you need to register for GST and how to calculate GST. Not sure about fringe benefit tax? Check out our guide to FBT.

Please note that this is general advice only. If you need specific advice on your own situation, it’s always best to speak to a tax professional or accountant. Get in touch at 1300 728 875 or fill out a contact form to get started.

Is the Tax Rate Different for Small Businesses and Companies?

People often use the terms "company" and "business" interchangeably, but they refer to different concepts.

A business is any organisation or entity involved in commercial, industrial, or professional activities. This includes sole traders, partnerships, and corporations. Its primary purpose is to earn profit by offering goods or services to customers. Businesses can differ in size, structure, and legal form, ranging from single-person operations to large corporations.

A company, on the other hand, is a specific type of business structure recognised by law. You can form a company by registering with a government authority. A company is a distinct legal entity separate from its owners (shareholders). This separation creates limited liability, meaning that owners’ personal assets are generally protected if the company incurs debts or legal issues. In other words, the company itself is liable for its debts and obligations, not its individual shareholders. There are various types of companies, such as private companies, public companies, and not-for-profit organisations.

In Australia, the tax rate for companies depends on their annual turnover and type of income. Companies with revenue below $50 million pay a rate of 25%. Those exceeding this number pay a tax rate of 30%.

These rates are applicable for the 2023–2024 income year. Always consult the ATO or your accountant for the most current rates and any specific details related to your business structure.

Want to learn more about different business structures? Check out the advice that Darcy Bookkeeping’s resident tax expert Brad Reynolds had to share on the Your Number Man podcast.

Filing Your Small Business Tax Return with the Australian Taxation Office (ATO)

The ATO is responsible for ensuring that small businesses comply with tax laws and regulations. It is your responsibility to accurately report all business income, expenses, and any eligible deductions or credits, as this helps you avoid potential penalties and ensures you maximise your tax return. Keeping thorough records can simplify the process and provide support in case of an audit.

Tax deductions for small businesses

Small businesses in Australia can claim a variety of deductions to help reduce their taxable income. Here are some common deductions that small business owners can consider:

Items like stationery, printer ink, and other necessary supplies.
Software subscriptions for business purposes, like project management, accounting software, and communication tools.
Costs for electricity, water, and gas in business premises.
Premiums for insurance policies related to business operations, like liability insurance or property insurance.
The cost for leasing an office or workspace.
Salaries paid to employees and contributions to superannuation funds.
Costs for employee training and professional development are deductible if they relate to business operations.
In some cases, legal fees can be tax deductible.

It's always advisable to keep clear records and receipts of all deductible expenses.

Expert Tax Advice for Small Businesses

Remember, while tax compliance is mandatory, it shouldn’t detract from your passion for growing your business and serving your customers. Seeking professional tax advice from an accountant is a smart move for any small business owner to ensure you’re making the most of your deductions and minimising your tax bill.

By letting professionals handle the intricate details of tax management, you can concentrate on achieving your business goals. If you need guidance on taxes and obligations for your small business, don’t hesitate to reach out to our team at Darcy Bookkeeping or by calling us on 1300 728 875.