How Much Tax Does a Small Business Pay in Australia?

Posted by Mary Milorrie Campos

May 25, 2022 10:00:00 AM

The financial year 2021/2022 will be ending on 30 June 2022. Make sure you’re keeping up with your tax obligations to prevent regulatory issues in the future. In case you’re still finalising your tax returns, find out below how much tax a small business pays in Australia. 


how much tax does a small business pay in australia


Key business taxes in Australia for the financial year 2021/2022

According to the Australian Trade and Investment Commission (Austrade), the key business taxes for small businesses in Australia are: 

  1. Company (income) tax 
  2. Capital gains tax (CGT) 
  3. Goods and services tax (GST) 
  4. Payroll tax 
  5. Tax for sole traders

Australian states, territories, and local governments also follow certain regulations and impose taxes relevant to specific business activities. Examples of these are the fringe benefits tax (FBT) and land tax. To know which ones apply to your business, it is best to check with your local regulator. 

It is also good to note that all small businesses registered as a company must pay company tax. There’s no exception; you pay tax for every single dollar your company earns. 

Sole traders, on the other hand, follow the individual tax rate. If you’re a sole trader, you can continue to the latter part of this article to know your tax obligations in running a business. 

Related: Corporate Tax Laws to Check Before Starting Your Business in Australia 

 

How Much Tax Does a Small Business Pay in Australia?

The company tax rates in Australia for the income year 2021/2022 are 25% and 30%, respectively. Meanwhile, the goods and services tax (GST) follows a flat rate of 10% which is normally added to the base price of your products or services. The payroll tax rate, on the other hand, depends on your region and the total wages you pay each month. If your total wages do not exceed a certain threshold, you don’t have to pay the payroll tax. 

Take note that the total amount of tax you need to pay in Australia depends on several factors: the types of taxes your business needs to fulfill, your gross and passive income, the applicable concessions to your business, and other factors that may be unique to your business or state. 

Read on to know which taxes apply to your business and how you can lower the amount you need to pay.  

1. Company Tax

Company tax, or income tax, is a tax imposed on all registered businesses in Australia. 

Both resident and non-resident companies, corporate unit trusts and public trading trusts pay company tax at a rate provided by the Australian government. 

There are two types of company tax rates: the full company tax rate and the lower company tax rate.

    • The full company tax rate is 30%. Companies subject to this are the ones who are not eligible for the lower company tax rate.
    • The lower company tax rate, also called base rate entity company tax rate, is 25% for the income year 2021/2022 and the future years. 

To be eligible for the lower company tax rate, your business must be a base rate entity from the 2017/2018 income year onwards. 

As a business entity:

    • Your aggregated turnover or assessable income for the entire income year is less than the aggregated turnover threshold. For 2021/2022 and future years, the threshold is $50 million.
    • Your passive income should be less than 80% of your assessable income. 

Aside from the lower tax rate, your small business may also be eligible for income tax concessions which can help you reduce your taxable income. To know the list of available concessions, and if you can apply for one, visit this page.  

Read next: 5 Reasons Why it’s Easier to Plan your Taxes with Cloud Accounting 

2. Capital Gains Tax

Capital Gains Tax (CGT) is the tax you need to settle if you make a profit from selling an asset. It falls under your company’s assessable income and follows the same rates used in computing the company tax. 

In most cases, you can determine your capital gain by subtracting the initial cost of your CGT asset from the amount you get after selling it. 

There is also the so-called CGT discount method. However, it is only available to individuals and eligible life insurance companies. 

To calculate your capital gains tax, check out this tool or follow this guide. 

Another way to lower your CGT tax is by applying for these small business CGT concessions 

3. Goods and Services Tax

Goods and Services Tax (GST) is a 10% tax added on consumer goods and services in Australia. This means that consumers are the ones who shoulder the cost. 

You should register your business with GST if it falls to any of the following: 

    • Your business has more than $75,000 GST turnover 
    • Your non-profit organisation has more than $150,000 GST turnover 
    • You are starting a new business and its projected turnover will reach the GST threshold in its first year of operation 
    • You are already doing business and have reached the GST threshold 
    • Your business provides taxi, limousine, or ride-sourcing services 
    • You have plans to claim fuel tax credits for your business. 

Failure to register can lead to costly consequences. The government may require you to pay the total GST due on all sales you’ve made starting on the day you’re mandated to register. Moreover, you may also need to pay penalties and interest. 

Meanwhile, your small business may be eligible for GST concessions if your aggregated turnover is less than $10 million. 

4. Payroll Tax

You need to lodge payroll tax if the total wages you pay to employees exceed the threshold per state or territory. 

Each state or territory follows a certain threshold and tax rate when computing the payroll tax. See the list below to figure out if your business is liable or exempted from payroll tax. 


a. Australian Capital Territory (ACT)

      • Annual threshold: $2,000,000 
      • Monthly threshold: $166,666.66 
      • Tax rate: 6.85% 

b. Northern Territory (NT)

      • Annual threshold: $1,500,000 
      • Monthly threshold: $125,000 
      • Tax rate: 5.5% 

c. New South Wales (NSW)

      • Annual threshold: $1.2 million 
      • Monthly threshold if there are: 
        • 28 days in a month: $92,055 
        • 30 days in a month: $98,630 
        • 31 days in a month: $101,918 
      • Tax rate: 4.85% 

Take note that a 50% reduction in 2021/2022 payroll tax liability may apply if your business: 

    • Is eligible for the 2021 COVID-19 Business Grant or JobSaver payment 
    • Your total grouped Australian wages for the 2021/2022 financial year are $10 million or less 
    • Your business experienced a 30% decline in turnover (this applies if you’re not eligible for the 2021 COVID-19 Business Grant or JobSaver payment, but have total grouped Australian wages of $10 million) 

For more information on tax relief measures in NSW due to COVID-19, visit this page. 

d. Victoria

      • Annual threshold: $700,000 
      • Monthly threshold: $58,333 
      • Tax rate: 4.85% 
      • The tax rate for regional Victorian employers: 1.2125% 

e. Queensland

      • Annual threshold: $1,300,000 
      • Monthly threshold: $108.333 
      • Weekly threshold: $25,000 
      • Tax rates: 
        • 4.75% for employers who pay $6.5 million or less in Australian taxable wages. 
        • 4.95% for employers who pay over $6.5 million in Australian taxable wages. 

Regional employers can avail themselves of a 1% discount on tax rate until 30 June 2023. 

f. South Australia

      • Annual threshold: $1,500,000 
      • Tax rates: 
        • Variable between 0% to 4.95% for businesses who pay $1.5 to $1.7 million in Australian taxable wages 
        • 4.95% for a business that pays more than $1.7 million in Australian taxable wages 
      • Maximum deduction 
        • Annual: $600,000 
        • Monthly: $50,000 

Tourism, hospitality, gyms or other businesses impacted by COVID-19 trading restrictions, and had resumed operations on 27 December 2021, can apply for a deferral of payroll tax return payments to their 2021/2022 Annual Reconciliation. Check here for more details. 

g. Tasmania

Tax rates and thresholds: 

      • 4% for businesses who pay $1.25 million to 2 million in Australian taxable wages 
      • 6.1% for businesses who pay more than 2 million in Australian taxable wages 

h. Western Australia

Tax rates and thresholds: 

      • 5.5% for businesses who pay $1 million but less than $7.5 million in Australian taxable wages  
      • 5.5% for businesses who pay $7.5 million but less than $100 million in Australian taxable wages 
      • 5.5% for wages up to $100 million plus 6% for wages from $100 million to $1.5 billion 
      • 5.5% for wages up to $100 million plus 6% for wages from $100 million to $1.5 billion plus 6.5% for wages above $1.5 billion 

Read next: The Basics Of Paying Payroll Tax 

5. Tax for sole traders

A sole trader is a person who runs and manages the entire business. Under this arrangement, you can simply follow the individual income rate when filing taxes instead of the company tax rate. 

For the financial year 2021/2022, sole traders who earn less than $18,200 are free of tax obligations. 

The computation for both CGT and GST are the same as the rules applied to companies. You can also apply for small business tax concessions if you meet the requirements. 

 

How to reduce your taxable income? 

Claiming your tax-deductible expenses, applying for tax concessions, and availing of tax relief measures due to the impacts of COVID-19 are the top ways to reduce your taxable income. 

Tax concessions vary depending on the type of tax you’re paying. Meanwhile, tax relief measures also differ by state or territory. Before you lodge your tax return, make sure you’ve checked with your local tax office first if they are offering tax relief measures for the financial year 2021/2022. 

 
 

Get the complication out of tax preparation

Tax preparation requires a tremendous amount of time, energy, and patience. While doing it yourself may make you believe that you are saving money, its long-term implications can be your worst nightmare. Hiring a professional tax accountant for your small business can make the job easier for you. You can also talk with our financial experts to see the solutions suitable for your business.

Wondering how you can make tax preparation easier? Use cloud accounting to keep your business records. Find out more by downloading our free guide.

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This article was first published on 6 January 2021 and edited on 25 May 2022.

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