How Much Tax Does a Small Business Pay in Australia? The Honest Answer for 2026
There is no single answer to this question.
How much tax your business pays depends on your structure. A sole trader pays differently from a company. A company pays differently from a trust.
Here is the honest breakdown for 2026.
Sole Trader Tax Rates
If you operate as a sole trader, your business income is your personal income.
You pay income tax at individual tax rates the same rates as any employee. There is no separate business tax rate.
For 2026–27, the individual tax rates are:
- $0 to $18,200 — tax-free
- $18,201 to $45,000 — 15%
- $45,001 to $135,000 — 30%
- $135,001 to $190,000 — 37%
- Over $190,000 — 45%
The Medicare levy of 2% applies on top for most residents.
So, if your sole trader business earns $80,000 after expenses, you pay tax on that $80,000 at the above rates minus any deductions.
Company Tax Rates
If your business operates as a company, it pays its own separate tax.
The company tax rate for base rate entities that is, companies with a turnover under $50 million whose passive income is 80% or less of total assessable income is 25%.
All other companies pay 30%.
For most small businesses structured as companies, the rate is 25%. This is lower than the top personal income tax rate. That is why some business owners choose the company structure.
Trust Tax
A trust does not pay tax itself. The income is distributed to beneficiaries.
Each beneficiary pays tax at their own individual rate. This gives family trusts flexibility in how income is split but it comes with significant compliance obligations.
If a trust does not distribute income to a beneficiary, the trustee pays tax at 47%. That is the highest possible rate. So trusts need to be managed carefully.
The Taxes Small Businesses Often Forget
Income tax is not the only tax your business pays. There are several others.
GST. If your turnover is $75,000 or more, you must register for GST. You collect 10% on sales and remit it to the ATO quarterly via your BAS. You also claim back the GST on your business expenses.
Payroll tax. In NSW, if your total Australian wages exceed $1.2 million, you pay payroll tax at 5.45% on wages above that threshold. Many businesses do not know this exists until they get a bill from Revenue NSW.
PAYG instalments. Once your business reaches a certain income level, the ATO requires you to pay tax in quarterly instalments throughout the year not just as a lump sum after you lodge your return.
Fringe benefits tax. If you provide non-cash benefits to employees company cars, laptops for personal use, expense reimbursements you may owe FBT at 47% on the grossed-up value.
What Reduces the Tax You Pay
Every legitimate business expense reduces your taxable income.
Wages, super, rent, equipment, professional services, marketing, and insurance are all deductible. The $20,000 instant asset write-off (available to businesses under $10 million turnover) allows immediate deduction of eligible asset purchases before 30 June 2026.
Good bookkeeping means you capture every deduction. Poor records mean you pay more tax than you need to.
How PAYG Withholding Fits In
If you have employees, you collect PAYG withholding from their wages and send it to the ATO.
This is not your tax it is your employees’ tax. You are just collecting it on the ATO’s behalf.
But you must do it correctly. The ATO updated tax tables from 1 July 2026. If your payroll software has not updated, you may be withholding the wrong amount.
Frequently Asked Questions
Does a small business pay less tax than a large one? Not automatically. The 25% company rate applies regardless of size. What changes is access to small business tax concessions like the instant asset write-off.
When do I pay company tax? Company tax is paid when you lodge your company tax return or quarterly via PAYG instalments if the ATO has set those up for your business.
Can I reduce my tax by paying myself a salary? Yes, if your business is a company. Paying yourself a salary shifts income out of the company and into your personal hands. But it must be a genuine, market-rate salary.
Do I need an accountant to sort this out? For tax structure decisions, yes. For keeping your records clean and payroll compliant throughout the year, a good bookkeeper is your first call.
Keep Your Numbers Right All Year Round
Tax time is easier when your records are clean throughout the year.
At Edulink Payroll Services, we manage payroll compliance for small and medium businesses across Sydney and Campbelltown. Clean payroll records mean accurate tax reporting and no surprises at year end.
Edulink Payroll Services charges $750 per year, per employee covering payroll, STP reporting, and super compliance.
Have more employees? Call us for a discounted rate.
📞 Call us today: 04 044 71 816
Edulink Payroll Services | Campbelltown & Greater Sydney | Call 04 044 71 816
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