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Business tax in Australia, structure by structure

Companies: 25% or 30%

A company pays a flat rate of tax on its taxable income. There is no tax free threshold and no marginal scale. The rate is 25% if the company is a base rate entity for the year, and 30% if it is not.

A company is a base rate entity for an income year if its aggregated turnover is under $50 million and no more than 80% of its assessable income is base rate entity passive income. Passive income includes dividends other than non portfolio dividends, franking credits, interest, royalties, rent, gains on qualifying securities, net capital gains, and partnership or trust income traceable to those amounts. Both tests are applied every year, so the rate can move between years. Turnover from earlier years is not relevant to the current year, although the previous year does set the rate you frank at.

Company tax is not the end of the story. When profit is paid out as a dividend, the shareholder is taxed on the grossed up amount and claims the franking credit, so the total tax across the chain lands at the shareholder's own marginal rate. The company rate is a deferral, not a discount. Tick the dividend box in the calculator above to see it.

Money taken out of a company without being paid as wages or a dividend is a loan, and Division 7A applies. Either put it on a complying loan agreement with minimum yearly repayments, or it is treated as an unfranked dividend.

Sole traders: your own marginal rates

A sole trader is not taxed separately from the person. Business profit goes into your individual return, is added to your other income, and is taxed at individual marginal rates plus the 2% Medicare levy. Losses can often be offset against your other income if you pass the non commercial loss tests.

The small business income tax offset reduces the tax on your share of small business income by 16%, capped at $1,000 a year, where aggregated turnover is under $5 million. It applies to sole traders and to a share of net small business income from a partnership or trust, not to company income.

There is no super guarantee obligation on your own drawings as a sole trader, but you can claim a deduction for personal concessional contributions up to the cap.

Partnerships: the return without the tax

A partnership lodges a return but does not pay income tax. Net income is worked out at the partnership level, then each partner includes their share in their own return and pays tax at their own rates. Partners with different other income pay different amounts of tax on the same dollar of partnership profit.

Shares follow the partnership agreement, and for a general law partnership they should reflect the real arrangement between the partners. Salaries paid to a partner are not deductible to the partnership, they are a prior allocation of profit.

Trusts: it depends who gets it

A trust generally pays no tax itself where beneficiaries are made presently entitled to all of the income by 30 June. Tax follows the entitlement:

• Adult resident beneficiary: taxed in their own return at their marginal rates, on their share of the trust's net income.
• Company beneficiary, or bucket company: taxed at 25% or 30%. If the entitlement is not actually paid across, it becomes a loan back to the trust and Division 7A needs managing, particularly following the Bendel litigation. Section 100A also has to be considered where the benefit ends up with someone other than the beneficiary.
• Minor under 18: Division 6AA penalty rates apply to unearned income. Nil to $416, then 66 cents in the dollar to $1,307, then 45% on the whole amount. Distributions from a deceased estate testamentary trust are excepted income and taxed at ordinary rates.
• Nobody, so income is retained: the trustee is assessed under section 99A at 45% plus the 2% Medicare levy, which is 47%. This is the outcome you get by accident when the resolution is late or invalid.

Capital gains and franked distributions can be streamed to specific beneficiaries where the deed allows it and the records support it. This calculator works on ordinary income only.

Rates and thresholds used here, 2026-27

The 15% rate on the second bracket started on 1 July 2026 and is legislated to fall to 14% from 1 July 2027. The 2% Medicare levy applies on top, with a reduction for low incomes: nil below the low income threshold, then a shade in of 10% of the excess until the full 2% applies. This calculator uses the individual threshold of $28,011, the most recent published figure, adjusted in the 2026-27 Budget for the 2025-26 year. Family and seniors thresholds are not applied. The low income tax offset gives up to $700, withdrawn at 5 cents in the dollar from $37,500 and 1.5 cents in the dollar from $45,000, out entirely at $66,667.

Super: with and without

Two salaries described with the same number can be thousands of dollars apart. Quoting a package inclusive of super means the cash component is the package divided by 1.12. Quoting a salary plus super means the business pays 12% on top. Get the wording wrong in an offer letter and someone is out of pocket.

Employers are not required to pay super guarantee on qualifying earnings above the maximum contribution base of $270,830 for the year, which caps compulsory contributions at $32,499.60. Awards and enterprise agreements can require more.

Worked example: $250,000 of profit

A business makes $250,000 before the owner takes anything, and the owner has no other income.

• Sole trader: $82,370 of tax and Medicare levy after the small business income tax offset, an effective rate of 32.9%.
• Company, profit retained: $62,500 at 25%, leaving $187,500 inside the company. The rest of the bill arrives when the profit is paid out.
• Company, profit paid out as a fully franked dividend: $83,370 across the company and the shareholder, slightly more than the sole trader because the small business income tax offset is not available on dividend income.
• Partnership or trust split between two adults on $125,000 each: $59,040 in total, an effective rate of 23.6%, because two sets of brackets are used instead of one.
• Trust with no valid resolution: $117,500 at 47%. The most expensive outcome available, and it comes from paperwork rather than trading.

Run your own numbers in the comparison above. Structure choice is about more than the headline rate: asset protection, who needs the cash, franking, future sale of the business and the cost of running the entity all come into it. Talk to your accountant before restructuring.