What is the tax rate for small businesses?

For most small business owners, accounting and filing taxes can be a headache. However, getting your taxes right is essential if you want to avoid legal issues and potential penalties down the line.

Looking for an overview of Australian business taxes to get you started? Join us as we cover all the basics of paying taxes in Australia as a small business owner, including the ATO small business tax rate, and concessions and credits to look out for.

This guide is intended for information only, and is not individual tax advice. If you’re unsure about how to manage the tax liabilities of your business, seek professional guidance from a tax accountant.

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Australian business taxes: A short summary

As a business owner you have a lot to think about when it comes to taxes. There are a range of taxes you may need to pay, including income tax, GST, capital gains tax and property taxes - and also concessions and credits you can access to offset some of the costs and support your growing business.

Business taxes in Australia are overseen by the Australian Taxation Office (ATO). One of the roles of the ATO is to support small businesses in managing and paying their taxes, and close the tax gap - that is the difference between what is voluntarily paid by businesses, and what should be paid.

The ATO works with some 6 million Australian business entities, to set out and communicate the tax rules for small businesses, and ensure all tax liabilities are paid.

Tax is complex, whether you’re paying your own individual taxes or managing the tax liabilities for your business. You can get a lot of free general advice and support online through the ATO website, and other official government sources¹,². It’s also smart to take professional guidance from a tax accountant to make sure you’re taking full advantage of all the concessions available to support business owners - and paying your dues on time.

Which taxes apply to small businesses?

Let’s take a look at the main taxes you need to learn about, when you own a small business in Australia³.

Income tax

Business income taxes can vary according to the type of company, and the turnover. Some types of business, including not for profit organisations, have different taxation levels, so you’ll need to confirm the details for your business with your tax accountant.

The level of taxes applied will be reviewed annually - here are the 2019/20 business income tax rates for most for profit businesses⁴,⁵:

Business type	Income tax rate
Base rate entities - small business tax rate	27.5%
Others	30%

Base rate entities are smaller companies, with a turnover below a level fixed annually by the government. From the 2018-19 tax year onwards, this covers companies with an annual turnover under $50 million, assuming that no more than 80% of the profits of the company come from passive income like rents and royalty.

Payroll tax

Payroll tax is collected by states and territories. You’ll pay if the total amount of payroll for your business exceeds the tax free level for your location. Payroll tax levels and collection processes vary between states and territories, so you’ll need to check the details for your location⁶.

Capital gains tax

You might incur capital gains tax (CGT) if you sell or dispose of an asset. For example, if you sell a business property, or shares. If you work from home, and sell your property, you may need to pay capital gains tax on the sale.

All that said, there are various CGT exemptions for small business owners. You may avoid paying if your business has owned the asset being sold for 15 years or more, if you’re aged over 55, or if you’re retiring either through ill health or due to age⁷.

Property tax

If your business owns property or land, you may need to pay taxes - usually directly to your state or territory. You may be liable for land tax if you own land, and you could have to pay rates if you own property. When you purchase a property for your business you may also need to pay a one off stamp duty⁸.

Other taxes to know about

Tax is a complex area, and taking professional advice makes good business sense. As well as the ATO small business taxes highlighted above, you may also want to learn about excise duties and the range of taxes you may need to pay if your business is based overseas, or you work buying and selling internationally.

If you’re a business registered for GST you may need to lodge Business Activity Statements (BAS), which can be quarterly or monthly. These are used to report and pay GST, and other taxes.

Tax incentives for small businesses

Don’t forget, when you start to prepare and file your business taxes, to look out for applicable tax concessions and credits⁹.

If you qualify as a small business entity under ATO guidelines, you might be able to access a range of support including the lower tax rates outlined above, tax breaks on professional and other expenses, and simplified reporting procedures. The ATO provides details about which businesses qualify for this support, based on turnover and other relevant factors - as well as a full listing of concessions and exemptions you might consider for your specific business circumstance¹⁰.

There’s also support for businesses running machinery, equipment and heavy vehicles in the form of fuel credit - get details online to see if this might apply to your business¹¹.

Things to remember

Let’s look at a further few final tips to make sure you’re all set for reporting and filing your ATO business taxes¹².

• When you choose a tax agent or bookkeeper, make sure they’re registered with the Tax Practitioners Board
• Make sure you have the right business structure in place for your company type - complicated business structures can make tax more difficult than it needs to be
• Invest in technology to keep and reconcile business records, and make tax reporting easier
• Keep expense records as you go, and make sure you have documentary evidence to back up any claims
• Make sure you’re working to the right deadline¹³ - sole proprietors, partnerships and trusts usually have to submit by 31 October. Self prepared company returns are usually required by 28 February. Business Activity Statement (BAS) submissions may be quarterly or monthly.

Need to know more about specific areas of Australian business tax?

Learn more about Business Activity Statements (BAS) if your business must submit one, here.

If you are required to use Single Touch Payroll (STP) in your company, you can read more about the process, here.

There’s a lot to learn about when it comes to taxes. Getting professional support is important, especially if you’re new to filing and paying business taxes in Australia. Understanding the rules is crucial, though, to make sure you pay your dues and avoid penalties and fees down the line.

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Sources:

1. ATO Tax and Small Business
2. ATO Small Business Taxpayers
3. Business.gov Taxation
4. ATO Company Tax
5. ATO Tax Rate, Business.gov Income Tax for Business
6. Business.gov Payroll Tax
7. Business.gov Captial Gains Tax
8. Business.gov Property Tax
9. ATO Small Business Concessions
10. ATO Concessions at a glance
11. Business.gov Fuel Tax Credits
12. ATO Tips for small business owners
13. Business.gov How to lodge and pay tax

All sources accurate as of 18 June 2020