Small business tax rates in Australia FY27: What you'll pay

Published Saturday 26 September 2026

Table of contents

• What tax rate does a small business pay in Australia?
• Company tax rates: 25% or 30%?
• What is a base rate entity?
• Sole trader and partnership tax rates
• Individual income tax rates for 2026-27
• The small business income tax offset
• GST and other taxes to plan for
• How to work out and plan for your tax bill
• Simplify your small business tax with Xero
• FAQs on small business tax rates in Australia

Key takeaways

• Your company rate is 25% if you're a base rate entity, or 30% if you're not; sole traders and partners pay individual marginal rates instead.
• A base rate entity has aggregated turnover under $50 million and gets 80% or less of its income from passive sources such as interest, rent, and dividends.
• The small business income tax offset gives unincorporated businesses up to $1,000 off their tax bill each year.
• GST, payroll tax, and good record keeping are separate obligations to plan for alongside income tax.

What tax rate does a small business pay in Australia?

The small business tax rate in Australia depends on your business structure. There's no single rate that applies to every small business.

If you run a company, you pay a flat company tax rate of either 25% or 30%. If you're a sole trader or in a partnership, your business profit is taxed at your individual marginal rates, the same rates that apply to personal income.

Your structure decides which set of rates you fall under. The rest of this guide walks through each one so you can see what you'll pay.

Company tax rates: 25% or 30%?

A company (a Pty Ltd) pays a flat rate on its profit, and there are two possible rates for the 2026 – 27 income year. The company tax rate in Australia is either 25% or 30%, and which one you pay comes down to whether you're a base rate entity.

The two company rates are:

• 25% for base rate entities, which covers most small companies
• 30% for all other companies that don't meet the base rate entity rules

Here's a plain example. If your company is a base rate entity and makes $80,000 in taxable profit, you'd pay $20,000 in company tax at 25%. A company on the full 30% rate would pay $24,000 on the same profit.

Unlike individual rates, the company rate is flat. It applies to every dollar of taxable profit, not just the amount above a threshold. You can find out more about business income tax rates here.

What is a base rate entity?

The base rate entity tax rate of 25% is the lower company rate, and your company has to meet two tests to qualify. Both need to be true in the same income year.

To be a base rate entity, your company needs:

• aggregated turnover under $50 million for the income year
• 80% or less of its assessable income coming from base rate entity passive income

Passive income is money your company earns without actively trading. It includes interest, rent, dividends, royalties and net capital gains. So if most of your income comes from running your business rather than from investments, you'll usually pass the 80% test.

If your company fails either test, you pay the full 30% rate for that year. Your eligibility is checked each income year, so it can change as your business grows or your income mix shifts.

Sole trader and partnership tax rates

Sole traders and partnerships don't have a separate business tax rate. Your business profit is treated as your income and taxed at individual marginal rates.

As a sole trader, you report your business profit on your personal tax return and pay tax at the resident individual rates. A partnership doesn't pay tax itself. Instead, it splits the profit between the partners, and each partner pays tax on their share at their own marginal rates.

Trusts work differently again. A trust generally distributes its income to beneficiaries, who then pay tax on what they receive at their own rates. Because your structure changes how your profit is taxed, it's worth understanding how each business structure is taxed before you lock one in.

Individual income tax rates for 2026-27

If you're a sole trader or partner, these are the resident individual rates that apply to your income. The rate for the $18,201 to $45,000 bracket dropped to 15% on 1 July 2026, down from 16%.

The resident individual tax rates for 2026 – 27 are:

• $0 to $18,200: nil, this is the tax-free threshold
• $18,201 to $45,000: 15%
• $45,001 to $135,000: 30%
• $135,001 to $190,000: 37%
• $190,001 and over: 45%

These rates are progressive, so each rate applies only to the income that falls within that bracket. Most people also pay a 2% Medicare levy on top of these rates.

The small business income tax offset

The small business income tax offset can lower the tax you pay if you run an unincorporated business. It's aimed at sole traders and people with a share of small business income from a partnership or trust.

The small business tax offset is 16% of the tax payable on your net small business income. It's capped at $1,000 per person each year, and it applies to unincorporated businesses with turnover under $5 million.

You don't need to work it out yourself. The ATO (Australian Taxation Office) calculates the offset based on your tax return, so you just need to report your business income correctly. Companies can't claim this offset because they already pay the lower company rate. See the ATO small business income tax offset page for the details.

GST and other taxes to plan for

Income tax is only part of the picture. A few other taxes and obligations can apply depending on your turnover, your state, and whether you employ staff.

Other taxes to plan for include:

• Goods and services tax (GST): charged at 10%, and you need to register for GST once your annual turnover reaches $75,000
• Payroll tax: set by each state and territory, with thresholds and rates that vary depending on where you operate
• Pay as you go (PAYG) instalments: regular prepayments towards your expected income tax across the year
• Superannuation: the compulsory super you pay for eligible employees on top of their wages

Staying on top of these means keeping clear records throughout the year. Strong visibility through cash flow management makes it easier to set money aside before each obligation falls due.

How to work out and plan for your tax bill

Planning ahead takes the stress out of tax time and helps you avoid a nasty surprise. Follow these steps to get a clear view of what you'll owe:

1. Confirm your business structure, because it decides whether you pay company rates or individual marginal rates.
2. Track your income and expenses year round so you know your taxable profit at any point.
3. Set aside a percentage of your income as you go, using your likely tax rate as a guide.
4. Use accounting software to record transactions and see your numbers in real time.
5. Talk to a registered tax agent or accountant if your situation is complex or you're changing structure.

Working through these steps early gives you time to budget and make decisions before your return is due. It also makes lodging your tax return far quicker.

Simplify your small business tax with Xero

Keeping accurate records all year is the simplest way to stay ready for tax time. Xero brings your income, expenses, and GST together in one place, so you can see what you're likely to owe and set money aside with confidence. Compliance becomes easier when your accounting software helps with much of the heavy lifting of bookkeeping.

Ready to spend less time on the books and more running your business? Get one month free.

FAQs on small business tax rates in Australia

Here are quick answers to some common questions about small business tax rates in Australia.

What does the ATO consider a small business?

For most tax concessions, the ATO treats you as a small business if you run a business with an aggregated turnover under $10 million. Some concessions, such as the small business income tax offset (applicable to businesses with a turnover of under $5 million), use a different turnover limit.

How much can a small business earn before paying tax?

A sole trader pays no income tax on the first $18,200 they earn, thanks to the tax-free threshold. A company pays tax from its first dollar of profit, as there's no tax-free threshold for companies.

Is the company tax rate 25% or 30%?

It's 25% if your company is a base rate entity and 30% if it isn't. Your turnover and how much passive income you earn decide which rate applies.

Do sole traders pay the small business tax rate?

No. Sole traders pay individual marginal rates on their business profit, not the company rate, though they may be able to claim the small business income tax offset.