Are you looking to start your own small business? There are so many things involved with getting your startup off the ground that, in all the busyness, tax might not be high up on your priorities in the beginning stages. While it might not be the most pressing thing on your to-do list, a way to set yourself up to succeed is by having a good understanding of your tax obligations as a small business owner – this way, there’ll be fewer tax surprises.
To learn more about how much tax small businesses pay to the Australian Taxation Office (ATO), as well as different types of business tax, tax deductions and other important information, you’ll find everything you need to know in our guide.
Small business tax rates for different business structures
Tax rates change every year, regardless of how long your business has been running. It is essential to ensure you’re using the correct rates for your reporting year. The tax rates for your small business depend on what type of business you’re running, which could be one of four:
Sole trader
As a sole trader, your business’s income is treated as personal assessable income for tax purposes. Therefore, you’ll pay the same rates as an individual and lodge one tax return, which you can do under your personal tax file number (TFN), and the tax-free threshold will apply.
Partnership
Partnerships don’t pay income tax, but you, an individual partner, will have to pay tax on your share of the profits at individual taxable income rates.
Company
Those who are running small business companies will pay tax at a small business company rate or, generally, the company tax rate. However, there are a few exceptions, which include life insurance and non-profit companies.
Trust
There are different types of trusts, and the tax rate you’ll pay on your trust depends on the type of trust you have, how you distribute your net income and who the recipients are. When distributing all your trust income, individual beneficiaries generally pay individual income tax rates, with the exception of those under the age of 18.
What are the business tax rates in Australia for a company?
All Australian companies are subject to pay company tax, which is set by the ATO, and company tax rates apply to entities which include:
- companies
- corporate trust units
- public trading trusts
Throughout the 2021-2022 tax years and future years, these entities have since been subject to pay a company tax rate of 25% for businesses with an annual revenue of $50 million and lower. This rate increases to 30% for businesses with a profit over this threshold.
It’s important to note that foreign business owners are taxed at the same rate as residential businesses.
What are the different tax considerations for businesses in Australia?
There are many different types of taxes that apply to small businesses in Australia. Here are the most common taxes that you, as a small business owner, should be aware of:
- Company tax: is a form of tax that all companies residing in Australia, including international companies that generate income in Australia, are liable to pay
- Capital gains tax (CGT): is the tax paid on profits when you dispose of assets, which include investments such as crypto assets, property and shares and is part of your income tax
- Goods and services tax (GST): This is a flat-rate tax applied to a majority of goods and services sold in Australia. It is the business’s responsibility to collect GST from customers. Businesses with a turnover of $75 000 or more or those who would like to claim GST credits will need to register for GST
- Payroll tax: is a form of self-assessable tax that is calculated according to the total wages your business would pay every month. This tax includes standard wages, superannuation contributions and staff fringe benefits. You can pay payroll tax monthly, quarterly or annually.
How much tax does a small business need to pay in Australia?
Each type of tax has a set rate that small businesses are required to pay. These rates differ according to your total revenue and change every year. Here are the tax rates you can anticipate:
Company tax rate
The full company tax rate, according to the 2021 – 2022 tax year, is 30%, but any companies that earn less than the $50 million threshold will pay a tax rate of 25%.
Capital gains tax
Capital gains tax is calculated with your income tax.
Goods and services tax (GST)
Small businesses will pay a flat rate of 10% for GST tax, and it is your responsibility to collect this tax from customers.
Payroll tax rate
Each territory or state in Australia has a specific tax rate when calculating payroll. Here is a list of different payroll tax rates:
- Australian Capital Territory: 6.85%
- Northern Territory: 5.5%
- New South Wales: 5.45%
- Victoria: 4.85%
- South Australia:
- 0 – 4.95% for employers that pay between $1.5 and $1.7 million in taxable wages
- 4.95% for employers that pay more than $1.7 million in taxable wages
- Tasmania:
- 4% for employers that pay between $1.25 and $2 million in taxable wages
- 6.1% for employers that pay more than $2 million in taxable wages
- Queensland:
- 4.75% for employers who pay less than $6.5 million in taxable wages
- 4.95% for employers who pay more than $6.5 million in taxable wages
- Western Australia:
- 5.5% for employers that pay between $1 and $7.5 million in taxable wages
- 5.5% for employers that pay between $1 and $7.5 million in taxable wages but less than $100 million
- 5.5% for employers that pay up to $100 million in taxable wages + 6% for wages between $100 million and $1.5 billion
- 5.5% for employers that pay up to $100 million in taxable wages + 6.5% for wages between above $1.5 billion
How much can my business earn before I pay tax?
The tax-free threshold for small businesses registered as sole traders is $ 18,200.
Need help managing your business finances? Book a free 30-minute strategy call with an accounting expert
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