How Much Tax Does a Small Business Pay in Australia?

The financial year 2022/2023 will be ending on 30 June 2023. If you’re still finalising the tax returns of your SME clients, find out below how much tax a small business pays in Australia to guide them accordingly.

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 

Take note that the list of taxes you’ll need to lodge may differ based on your location and business activities. Each Australian state, territory, and local government, for instance, may implement certain tax regulations that are different from their neighbouring state. 

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.

Keep in mind 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. 

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 2022/2023 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. 

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:

• • Its 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. 
  • Its passive income should be less than 80% of your assessable income. 

Aside from the lower tax rate, another way to reduce taxable income is through income tax concessions. Visit this page to know the list of available concessions and how to be eligible for one. 

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

2. Capital Gains Tax

Profits from selling an asset are usually subject to the Capital Gains Tax (CGT). It falls under your company’s assessable income and follows the same rates (30% and 25%) used in computing the company tax. 

In most cases, the capital gain is computed by subtracting the initial cost of the CGT asset from its ‘gains’ 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. 

You may also check out these small business CGT concessions for lowering the CGT tax. 

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. 

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

• • A business with more than $75,000 GST turnover 
  • A non-profit organisation with more than $150,000 GST turnover 
  • An existing business that has reached the GST threshold  
  • A new business with a projected turnover that will reach the GST threshold in its first year of operation 
  • A business that provides taxi, limousine, or ride-sourcing services 
  • A business that plans to claim fuel tax credits

Businesses with an aggregated turnover of less than $10 million can apply for GST concessions. 

4. Payroll Tax

A business should lodge a payroll tax if the total wages it pays to employees exceeds 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: 5.45%

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 less than $6.5 million in Australian taxable wages. 
      • 4.95% for employers who pay more than $6.5 million in Australian taxable wages. 

Regional employers can avail 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 that 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 

g. Tasmania

Tax rates and thresholds: 

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

h. Western Australia

Tax rates and thresholds: 

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

Read next: The Basics Of Paying Payroll Tax 

Reducing the taxable income

Claiming your tax-deductible expenses and applying for tax concessions 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 programs for the financial year 2022/2023.

Expand your firm’s capacity for the busy season

Tax preparation requires a massive amount of time, energy, and patience. During the busy season, it may stretch your firm’s capacity too thin to meet all your clients’ tax obligations. 

Outsourcing certain tax functions to professional tax accountants can be your smartest way to get out of such situations without compromising the quality of your service delivery. Good thing, D&V Philippines offers scalable finance and accounting solutions that will serve as the extension of your firm when you need it most. 

If you’re interested in learning more about our services, get in touch with our experts today! You can also download our whitepaper, Finding the Right Talents: D&V Philippines’ Solutions to Modern Accounting Firms, to find out how we can help in expanding your firm’s capacity.