For the 2025 financial year, small businesses in Australia can generally expect to pay a reduced corporate tax rate of 25% if they meet the relevant turnover threshold of less than AUD 50 million. Unincorporated small businesses with turnover below AUD 5 million may qualify for an annual tax offset of up to AUD 1,000. With additional concessions potentially available, navigating small business tax obligations in Australia can be made simpler by understanding these key thresholds, structures, and incentives.
Running a small business can be a joyful and liberating experience—until tax season arrives and whips up a storm of forms, deadlines, and confusing rates. If you find yourself vexed by corporate vs. personal tax, deductions, offsets, and official guidelines, you're not alone. The good news is that Australia offers a variety of small business tax concessions and simplified processes. By grasping the fundamentals—such as which tax rate applies, how turnover thresholds affect eligibility, and which deductions might reduce your bill—you can feel more confident, stay compliant with Australian regulations, and even leave room for a few well-deserved chuckles at your next networking event.
Below, we’ll explore the many angles of Australia’s small business tax system for the 2025 financial year and show you how to keep more money in your pocket.
When it comes to answering, “How much tax does a small business pay in Australia?” we first need to clarify what “small business” actually means. The Australian Taxation Office (ATO) offers guidelines based on annual turnover (also known as aggregated turnover).
However, meeting these criteria is only half the story—you must also ensure that the significant portion of your income is from active business (not passive investments) to qualify for certain small business rates. If passive income (such as dividends or rents) exceeds 80% of total assessable income, the reduced company tax rate usually does not apply.
One of the biggest determinants of your effective tax rate is the structure you choose for your enterprise. Broadly, small businesses in Australia operate under one of the following:
Each structure comes with its own tax implications and benefits. For instance, while companies pay a flat corporate tax rate (which may be 25% for small businesses), sole traders, partnerships, and trusts pay tax on business profits at individual marginal tax rates—though they may also enjoy the small business tax offset if they qualify.
A common realisation is that many Aussie entrepreneurs start out as sole traders—because there's no separate legal entity, it’s straightforward to begin. Then, a few years of success (and maybe a few grey hairs) later, they switch to a company structure for the potential tax advantages and legal protections.
So, how much tax does a small business pay in Australia if it’s structured as a company? While the general company tax rate is 30%, there’s a reduced rate of 25% for small (or “base rate”) companies with an aggregated turnover below AUD 50 million, provided that passive income doesn’t exceed the 80% threshold.
Here’s a handy table comparing key features between companies that qualify for the small business rate and those that do not:
| Company Type | Aggregated Turnover Threshold | Tax Rate | Passive Income Limit |
|---|---|---|---|
| Small Business Entity (Base Rate Entity) | < AUD 50 million | 25% | ≤ 80% of total income |
| General Company | No turnover limit | 30% | Not applicable |
If your small business crosses above that AUD 50 million threshold, congratulations! You’re not so “small” anymore—although you’ll be paying the general 30% company tax rate, you’re probably in a champagne-position anyway.
For unincorporated entities (sole traders, partnerships, or trusts), there’s an entirely different set of rules to keep your spirit alight during tax season. Rather than applying a lower tax rate, the ATO allows eligible individuals to claim the Small Business Income Tax Offset—this can be up to AUD 1,000 per year.
Here are the basics:
This offset might not rival the corporate rate cut in sheer dollar value, but it can still reduce the tax weight on your shoulders. If you run a small creative consultancy as a sole trader, for example, this offset might bring a (small but welcome) smile to your face when you lodge your tax return.
Beyond the straightforward corporate tax rate or the income tax offset, Australia offers various small business concessions that can help cut costs and simplify operations. These include:
While these concessions roughly share a common goal—reducing red tape, flattening the compliance burdens, and, of course, lessening your tax load—the specific turnover threshold for each advantage can differ. For instance, some benefits apply to businesses with turnover below AUD 2 million, while others extend to those below AUD 10 million.
Navigating small business tax in Australia might feel like juggling spreadsheets while riding a unicycle, but it doesn’t have to. By understanding fundamental concepts—corporate vs. personal tax structures, turnover thresholds, the difference between active and passive income—you’re well on your way to paying only what you owe (and not a cent more).
Staying informed about year-by-year policy changes is key, especially as the government continues to refine small business concessions and introduce new frameworks. While parties like sportspersons, entertainers, and primary producers get special rules, general small businesses benefiting from the 25% corporate rate or the tax offset can still enjoy a relatively light load if they plan carefully.
If you need support or have questions, please contact us at Amplify 11.
Not quite. While the turnover threshold is the primary condition, you also need to ensure that no more than 80% of your total assessable income is passive. If you exceed that level of passive income, you may revert to the general 30% company tax rate.
Yes. Many small business owners restructure as their enterprise grows. However, switching structures can involve legal and administrative steps—like transferring assets and notifying the ATO—so it’s important to seek professional advice to ensure any transition is smooth and beneficial.
Potentially, yes. The threshold for the small business income tax offset is AUD 5 million in aggregated turnover, and the maximum offset is AUD 1,000 per year. Just remember, the offset is based on the tax payable on your business income, not your total personal income.
The ATO outlines various small business concessions for thresholds under AUD 2 million, AUD 5 million, and AUD 10 million. Concessions include immediate asset write-offs, simplified depreciation, and possible reductions in Fringe Benefits Tax. Visit the ATO website or consult an accountant to determine which apply to you.
Track your aggregated turnover carefully throughout the year. If it looks set to surpass an important threshold, consider adjusting your cash flow or business structure. You may also need to plan for a shift from the 25% company tax rate to the 30% rate if you’re scaling beyond AUD 50 million. Regular forecasts and professional guidance can help you pivot effectively.
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