A Guide to Tax Rate for Small Business in Australia

Australia offers a welcoming environment for entrepreneurs due to its robust economy, government support, and strategic location. If you're considering launching a small business in Australia, understanding the tax rates is essential for effective planning.

In this guide, we will explore the advantages of starting a small business in Australia, followed by an overview of business structures such as sole trader, company, and trust, along with their tax obligations. Additionally, we will dive into the various tax types and the tax rates for small businesses in Australia, including Company Tax, CGT, GST, and Payroll Tax.To provide deeper insight, we will also walk through a practical example to answer the question, “How much tax a small business pays in Australia?”—to help you be more prepared before taking the next step in your entrepreneurial journey.

Why is Starting a Small Business in Australia a Good Idea?

Australia is one of the world’s most stable and prosperous economies, making it an attractive destination for entrepreneurs. The following key reasons make Australia an ideal place to start a small business:

• i) Economic Strength: Australia’s GDP surpassed AUD 1.69 trillion in 2024, ranking among the top 15 economies globally. The business-friendly regulatory environment also minimizes bureaucratic obstacles.


• ii) Government Supports: The Australian government actively supports small businesses through tax incentives, grants, and funding programs. For example, a reduced tax rate is applied for small businesses in Australia with an annual turnover below AUD 50 million, compared to the 30% standard rate for larger corporations.


• iii) Strategic Location: Australia serves as a gateway to Asian markets, supported by multiple Free Trade Agreements (FTAs) that greatly facilitate international trade.


• iv) Skilled and Diverse Workforce: Bolstered by strong migration and international student numbers, Australia’s workforce is globally recognized for its high skill levels and diversity.

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The Definitions of Small Businesses in Australia

Small businesses in Australia are categorized based on various factors, such as their annual revenue and legal structure. Understanding these classifications is crucial when determining applicable tax rates.

1. Sole trader

• An individual who owns and operates the business.
• The simplest and most inexpensive business structure with minimal requirements.
• The Owner is responsible for all debts and obligations with no legal separation between the owner and the business.
• The small business tax rate for sole traders in Australia depends on the individual income rate.
• No need to register with ASIC.

2. Partnership

• Two or more individuals or entities share ownership, responsibilities, income, and management.
• Partners are personally liable for debts.

3. Company

• A separate legal entity with rights similar to a natural person.
• The company is required to register with the ASIC.
• Limited liability for owners.
• No tax-free threshold, and in Australia, the tax rate for this small business type depends on the income level.

4. Trust

• A legal arrangement where a trustee manages assets for the benefit of beneficiaries.
• Requires a formal trust deed and ongoing administrative tasks.
• If the trustee is a company, it must be registered with ASIC.

Summary Table of Small Businesses in Australia

What Are the Taxes Applicable to Small Businesses in Australia?

Most businesses need a tax file number (TFN), an Australian Business number, and an Australian company number (ACN) to operate, depending on their size and structure. Aside from these requirements, small businesses in Australia must comply with the following tax obligations mandated by the Australian Taxation Office (ATO):

1. Company Tax

Companies, including small businesses residing in Australia, are required to pay company tax. The companies that are not resident in Australia will be taxed on the Australian source incomes. The standard tax rate for small businesses in Australia is 30% if they are not eligible for the lower company tax rate.

2. Capital Gains Tax (CGT)

When a business sells (or disposes of) an asset, such as property, shares, or equipment, it may be subject to CGT as a part of its income tax.

3. Goods and Services Tax (GST)

GST is a broad-based consumption tax that applies to most goods and services in Australia. Businesses with an annual turnover of AUD 75,000 or more are required to register for GST and collect it from customers. The goods and services tax rate for small businesses in Australia is set at 10%.

4. Pay as you go (PAYG) Withholding

PAYG withholding is a system where employers withhold income tax from employees’ wages and pay it directly to the ATO. It helps employees reduce the tax at the end of the financial year. The tax rate of PAYG withholding for small businesses in Australia depends on the employees’ income level.

5. Payroll Tax

Payroll tax is a state or territory tax calculated on the total wages paid each month. However, not all businesses have to pay payroll tax. Payroll tax is required if the total Australian wages are over the tax-free threshold for the relevant state or territory.

Summary Table of Australia Small Business Tax Rates

Source: Australian Taxation Office (ATO) website

How Much Tax Does a Small Business Pay in Australia?

If you operate a small business in Australia with an annual revenue exceeding AUD 50 million, here are the basic taxes you need to pay:

• Company Tax: If the net profit is AUD 10 million, the company tax payable would be: AUD 10 million × 30% = AUD 3 million.
• Goods and Services Tax (GST): If your business generates AUD 50 million in taxable sales, the GST collected would be: AUD 50 million × 10% = AUD 5 million. (The final GST payable depends on input tax credits for GST paid on business expenses.)

Beyond these fixed tax rates, additional obligations such as Capital Gains Tax (CGT) apply when selling business assets, while Payroll Tax and PAYG withholding depend on employee wages and business location.

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Choose The Executive Centre for Setting Up Your Business

Running a successful business in Australia requires not only a clear understanding of the tax rate small business Australia applies, but also careful financial planning and compliance with government regulations. Knowing the answer to “How much tax does a small business pay in Australia?” helps business owners to manage expenses and maximise profitability.

Beyond tax considerations, having the right office space is also crucial for business growth. If you're planning to start a business in Australia, reach out to The Executive Centre. We provide premium office solutions, including flexible spaces, Private Offices, and Hot Desking solutions across Australia, including Perth, Sydney, and Melbourne. TEC’s Hot Desk solutions offer a flexible workspace where you can access any available workstation. This approach enhances productivity and interaction between departments, helping reduce high office costs for your business. Combining well-managed tax finances with a premium, dynamic workspace creates a strong foundation for your business’s long-term success.

FAQs

No, if you register as a sole trader under Australia’s small business structures, the tax rate and tax type follow individual income tax rules, no company tax.

For sole traders and partnerships, the tax-free threshold follows individual income tax rates. The individual tax-free threshold is AUD 18,200 per year. As for companies, there is no tax-free threshold, and all profits are taxed. The tax-free threshold for trusts then depends on whether the beneficiary is an individual or a company.

You can find the latest tax regulations and tax rates for small businesses in Australia on the Australian Taxation Office (ATO) website. The ATO provides detailed information on tax obligations, thresholds, deductions, and any updates to tax policies.