For small business owners across Australia, staying ahead of tax obligations is just as important as managing operations or securing new clients. Yet the tax rate for small business in Australia often feels like a moving target, shaped by annual budget updates, eligibility rules, and evolving compliance requirements.
In 2025, knowing exactly where you stand can be the difference between missed opportunities and strategic growth.This blog breaks down the current small business tax landscape so you can make informed decisions.
Whether you’re preparing your small business tax return Australia, exploring deductions, or planning ahead for EOFY, understanding the latest rates and offsets will help you unlock available benefits, and avoid costly mistakes.
And if you’re looking for expert support to manage your tax compliance and strategy, trusted accounting professionals are ready to help. Let’s walk through what’s changed, what’s stayed the same, and what it means for you.
What Defines a Small Business in Australia?
In Australia, the definition of a small business goes beyond just revenue, it’s also about size, structure, and employment. Typically, a small business in Australia is classified as one that employs fewer than 20 people.
According to the Australian Bureau of Statistics, nearly 97% of all businesses in the country fall into this category, making them a vital part of the national economy.
Small businesses are further categorised based on workforce and earnings:
- Non-employing business: Sole traders who operate without employees
- Micro-business: Employs between 1–4 staff
- Small business: Employs between 5–19 staff
- Nano business: Generates less than $75,000 in annual turnover
Understanding your business classification matters, not just for operational strategy, but also for accessing tailored tax benefits, including the small business tax offset and reduced small business income tax rate. Businesses that embrace offshore bookkeeping solutions can further reduce costs and maintain compliance without compromising accuracy or efficiency.
Small Business Tax Rate in Australia
The small business tax rate in Australia is currently set at 25% for base rate entities, companies with an aggregated turnover of less than $50 million and no more than 80% of their income from passive sources.
This rate is significantly lower than the top marginal personal income tax rate, offering a strategic incentive for entrepreneurs to incorporate and reinvest earnings back into their business growth.
So, what is the company tax rate in Australia for small businesses? The answer depends on your business structure. Sole traders and partnerships are taxed at individual rates, while companies benefit from the flat 25% rate.
Your tax obligations also depend on federal regulations and eligibility for concessions like the small business tax offset, which can further reduce your payable tax if you operate as a sole trader or through certain trusts.
Understanding Business Structures and Their Tax Implications
Sole Trader Tax Rates for the 2025–26 Financial Year
As a sole trader in Australia, business profits are treated as personal income and taxed at the individual income tax rates. Unlike companies, sole traders do not pay a separate business tax, they are taxed directly on their personal share of profits.
The official 2025–26 tax brackets for Australian residents are as follows:
| Taxable Income ($) | Tax Rate |
|---|---|
| Up to 18,200 | 0% |
| 18,201 – 45,000 | 16% |
| 45,001 – 135,000 | 30% |
| 135,001 – 190,000 | 37% |
| Over 190,000 | 45% |
These brackets remain consistent from the 2024–25 year, with no changes to withholding schedules for 2025–26. Note that none of these figures include the mandatory 2% Medicare levy on taxable income.
While stage-three personal tax cuts are legislated, they only come into effect from 1 July 2026, reducing the 16% marginal rate to 15%, and then further to 14% from 1 July 2027.
Why This Matters for Small Business Owners
When you’re operating as a sole trader, your tax rate directly aligns with these thresholds, making your small business income tax rate highly dependent on personal earnings. For example, earning $60,000 in taxable profit means paying zero on the first $18,200, 16% on the next $26,800, and 30% on the income above $45,000. Medicare levy adds 2% on top of this.
This structure emphasises the importance of tax planning, whether that’s leveraging deductions, timing income, or considering a different business structure like a company or trust to optimise your effective rate. Partnering with outsourced CFO services can also help small business owners access expert insights for better compliance and tax-saving strategies. Engaging with outsourced SMSF accounting experts can provide guidance on structuring your business for maximum tax efficiency and compliance.
Trust Income Taxation in Australia
In a trust structure, the trust itself doesn’t pay tax, its income is distributed to beneficiaries, who are taxed individually at their personal income tax rates. This offers flexibility for tax planning, as income can be split among beneficiaries to reduce the overall liability.
While trusts can unlock small business tax benefits Australia offers, they require more administration. Each beneficiary must manage their own tax, including the Medicare levy, and trustees are responsible for accurate record-keeping and compliance.
Small Business Tax Obligations in Australia
Every small business in Australia must navigate a range of tax obligations that vary depending on your income, business structure, and operations. Understanding these responsibilities is key to staying compliant and avoiding penalties. Here are four core taxes that may apply to your business in the 2025–26 financial year:
- Goods and Services Tax (GST): A 10% tax applied to most goods and services sold. If your business has an annual turnover of $75,000 or more, registration for GST is mandatory, and you’ll need to include GST in your pricing.
- Fringe Benefits Tax (FBT): If you provide employees with non-cash benefits, such as company vehicles or entertainment, you may be liable for FBT. This applies when the total value of benefits exceeds $2,000 per employee in a financial year.
- Payroll Tax: This is a state-based tax on wages paid by employers. Each state and territory in Australia sets its own thresholds and rates, so your obligations will depend on where your business operates.
Income Tax: Your business will also be subject to income tax, which varies by structure. For example, companies pay a flat 25% small business tax rate in Australia, while sole traders and trusts are taxed at individual rates.
| State/Territory | Annual Payroll Threshold | Payroll Tax Rate |
|---|---|---|
| NSW | $1,200,000 | 5.45% |
| QLD | $1,300,000 | 4.75% (≤ $6.5M wages); 4.95% (> $6.5M) + potential surcharge for > $10M |
| VIC | $1,000,000 (↑ from $900K) | 4.85% (metro), 1.2125% (regional); deduction phased out above $5M |
| SA | $1,500,000 | Up to 4.95% (0%–4.95% tiered above $1.5M) |
| WA | Approx. $1,000,000 | 5.50% standard rate; threshold phasing between $1M and $7.5M |
| TAS | $1,250,000 | 4.0% for wages $1.25M–$2M; 6.1% for over $2M |
| ACT | $2,000,000 | 6.85% general; higher surcharges: 0.5% for > $50M, 1.0% for > $100M Australia-wide wages |
| NT | $2,500,000 | 5.50% standard rate |
Conclusion
Navigating the tax rate for small business in Australia is about more than just knowing the numbers, it’s about understanding how your business structure, income level, and location all play a role in what you owe and what you can save.
Whether you’re a sole trader paying individual rates, a company taxed at a flat 25%, or a trust distributing income among beneficiaries, your tax strategy should be customised to your unique setup.
As we move through the 2025–26 financial year, staying on top of the small business tax rate Australia offers and leveraging opportunities like the small business tax offset can make a meaningful difference in your bottom line.
From understanding the small business income tax rate to meeting small business tax return Australia deadlines, now is the time to ensure you’re not just compliant, but also making smart, future-ready financial decisions. You need guidance and expert support to optimise your tax position, now is the right time to start the conversation.
