Tax

Company Tax Rate Australia 2026: What Small Businesses Actually Pay

15 June 2026 · 9 min read

Quick Answer

Most small businesses in Australia pay a 25% company tax rate in 2026, provided their aggregated turnover is under $50 million and no more than 80% of their income is passive. If your company earns mostly passive income — like rent or interest — the 30% rate applies instead.

Every year, thousands of Australian small business owners lodge their company tax return and discover they've been estimating the wrong rate. In 2026, the rules haven't changed dramatically, but the 25% vs 30% distinction still trips people up — especially when passive income is involved.

This post covers both company tax rates, the exact eligibility test the ATO uses, how franking credits work at each rate, and what you can do before 30 June 2026 to reduce what you owe. If you employ staff, there's also a payday super deadline on 1 July 2026 you cannot miss — more on that below.

Note: this post covers companies — that is, entities registered as a Pty Ltd or Ltd with ASIC. Sole traders and partnerships are taxed under personal income tax rates, which are different. If you're a sole trader, the ATO's individual tax brackets apply to your net business income instead.

The Two Company Tax Rates in Australia for 2026

Australia operates a two-tier company tax system. The standard rate is 30%, and it has applied to companies since 2001. The lower 25% rate — called the base rate entity (BRE) tax rate — was phased in for small businesses over several years and reached its current level of 25% in the 2021–22 income year. It has stayed at 25% through 2025–26.

The rate that applies to your company depends on two tests the ATO runs every income year. First, your aggregated turnover must be less than $50 million. Second, no more than 80% of your assessable income can be passive income. If your company passes both tests, you pay 25%. Fail either one and the 30% rate applies for that entire income year — there is no partial rate.

Aggregated turnover includes the combined annual turnover of your company plus any affiliates or entities connected to you. This catches situations where a business owner runs multiple small companies — the ATO adds all their turnovers together before applying the threshold test. The ATO's guidance on base rate entities is in Tax Ruling TR 2019/1.

The 25% rate has been locked in since 2021–22. There is no planned reduction below 25% for 2026 or beyond under current legislation.

Quick reference: which rate applies?

25% — base rate entity (BRE) rate: aggregated turnover under $50M AND passive income ≤ 80%
30% — standard corporate rate: turnover at or above $50M, OR passive income exceeds 80%
The rate is assessed fresh every income year — you don't lock in permanently
Aggregated turnover includes connected entities and affiliates, not just your own company

What Counts as Passive Income — The 80% Test Explained

The passive income test is where most small business owners get confused. The ATO defines 'base rate entity passive income' (BREPI) to include dividends, franked distributions, rent, royalties, interest, and net capital gains. If those income types collectively make up more than 80% of your company's total assessable income in the year, you lose access to the 25% rate — even if your turnover is well under $50 million.

A practical example: imagine a small property investment company with $400,000 in rental income and $80,000 in income from a small consulting arm. Total income is $480,000. Rental income represents 83% of that total — above the 80% threshold. Despite having a turnover well under $50 million, this company pays 30% company tax, not 25%.

Conversely, a small IT services company with $600,000 in service fees, $20,000 in bank interest, and $10,000 in a capital gain on sold equipment has passive income of $30,000 — only 4.8% of total income. That company easily passes the 80% test and pays 25%. The key takeaway: if your company's main activity is operating a business rather than holding assets, you almost certainly pass the passive income test.

Franked dividends received from other companies count as passive income for this test — even if the dividend came from an active operating business you part-own.

Franking Credits: Why the Tax Rate Affects Your Shareholders Too

Franking credits — sometimes called imputation credits — are attached to dividends you pay to shareholders. They represent the company tax already paid, and shareholders use them to offset their personal income tax. The maximum franking credit you can attach to a dividend depends on which tax rate your company paid.

If your company paid 25% tax, the maximum franking rate on dividends is 25%. If it paid 30%, the maximum is 30%. A shareholder who receives a fully franked $75 dividend from a 25% rate company receives a $25 franking credit — because the company paid $25 tax on the $100 of pre-tax profit that generated that dividend. A 30% company paying the same pre-tax profit would produce a $70 cash dividend with a $30 franking credit.

This matters practically because shareholders in lower marginal tax brackets (below 25%) can receive a tax refund from excess franking credits. Shareholders in higher brackets (37% or 45%) still owe top-up tax, but the credit reduces what they pay. If your company's tax rate changes between years — say it grew above $50 million turnover — the franking account balance and the rate at which you can frank future dividends both shift. Keeping a clean franking account ledger is important, especially approaching EOFY.

If your company changed tax rates this year — because turnover crossed $50M or passive income shifted — your accountant needs to recalculate the maximum franking rate on any dividends paid this year before lodgement.

Franking credit maximums by rate:

25% rate company: maximum franking credit per dollar of dividend = 25/75 (33.33 cents per dollar of cash dividend)
30% rate company: maximum franking credit per dollar of dividend = 30/70 (42.86 cents per dollar of cash dividend)
Over-franking a dividend triggers a franking deficit tax from the ATO

How to Reduce Your Company Tax Bill Before 30 June 2026

The single most powerful tool available to small businesses right now is the instant asset write-off. For the 2025–26 income year, businesses with aggregated turnover under $10 million can immediately deduct the full cost of eligible depreciating assets costing less than $20,000, purchased and installed ready for use before 30 June 2026. Assets $20,000 or above go into the small business pool at an accelerated depreciation rate. This was confirmed in the 2025–26 Federal Budget — check the ATO website for any last-minute legislative updates before lodgement.

Prepaying deductible expenses is another legitimate tool. Company tax deductions generally follow when expenses are incurred, not when cash is paid — but prepayment rules allow small businesses to prepay up to 12 months of certain expenses (like rent, insurance, or subscriptions) before 30 June and claim the deduction in the current year. This shifts taxable income forward and reduces this year's tax liability.

If your company has made a loss in 2025–26, the tax loss carry-back offset may apply. Eligible companies with turnover under $5 billion (yes, the threshold is broad) can carry a 2025–26 tax loss back against tax paid in 2020–21 onwards and receive a refundable tax offset. This was introduced during COVID and extended. Check whether it still applies in your specific situation with your accountant before lodgement — the offset is claimed in your company tax return, not separately.

The instant asset write-off threshold of $20,000 applies per asset, not in total. You can claim multiple assets as long as each individual asset costs less than $20,000.

Actions to take before 30 June 2026:

Instant asset write-off: assets under $20,000 purchased and in use before 30 June 2026
Prepay up to 12 months of deductible expenses before 30 June
Small business pool: pool remaining depreciating assets and claim 30% in year 1
Tax loss carry-back: offset 2025–26 losses against prior years' tax paid
Defer invoicing where possible if your turnover is near $50M and would push you to 30%

The 1 July 2026 Payday Super Deadline — What It Means for Your Company Tax

If your company employs people, there is a hard deadline in 16 days that directly intersects with your tax position. From 1 July 2026, the ATO's payday super reform requires employers to pay superannuation contributions to employees' funds at the same time as — or within three days of — each payroll run. Currently, super can be paid quarterly. That window closes on 30 June 2026.

For company tax purposes, superannuation contributions are only deductible in the year they are actually paid to the fund and received — not the year they are accrued or calculated. Under the current quarterly system, many employers pay their Q4 2025–26 super contribution after 30 June — meaning it becomes a 2026–27 deduction, not a 2025–26 one. If you want to claim that super contribution in your 2025–26 company tax return, you must have the funds received by the superannuation fund before 30 June 2026.

This is a real cash-flow consideration for small businesses. Paying super early increases your deductible expenses in 2025–26, reducing this year's taxable income. But it also means cash goes out the door weeks earlier than usual. With the payday super system kicking in on 1 July, there is no more quarterly buffer from next financial year. Build superannuation into your fortnightly or monthly payroll cash-flow model now — SAB Account AI's payroll module calculates super per pay run so nothing slips through.

URGENT: Super contributions must be received by the fund before 30 June 2026 to be deductible in your 2025–26 company tax return. Payday super becomes mandatory from 1 July 2026 — 16 days away.

Paying PAYG Instalments and Lodging Your Company Tax Return

Most companies pay their income tax throughout the year via PAYG (Pay As You Go) instalments, not in one lump sum at lodgement. The ATO calculates your instalment amount based on your prior year tax liability and sends you an activity statement quarterly (or annually for very small companies). If your business has grown significantly in 2025–26, your instalments may have under-covered your actual liability — meaning a payment is due at lodgement.

Company tax returns for the 2025–26 income year are due by 28 February 2027 if you lodge through a registered tax agent, or 31 October 2026 if you self-lodge. These are standard lodgement deadlines — the ATO can apply penalties for late lodgement starting at $330 for small entities (turnover under $1 million) and escalating with time. If you cannot lodge on time, contact your tax agent or the ATO before the deadline, not after.

The company tax rate you report in your return — 25% or 30% — must match whether your company qualifies as a base rate entity for the income year. Your tax agent will calculate this. If you use accounting software that tracks revenue by category, generating the passive income percentage is straightforward. If your books are not clean, this calculation becomes a problem at lodgement time — another reason to keep income categorised correctly throughout the year.

If you have overpaid PAYG instalments — because your 2025–26 profit came in lower than expected — you will receive a refund or credit when the return is assessed. Varying your instalment rate down during the year (using the ATO's variation process) prevents over-payment.

Key company tax dates for 2026:

Self-lodged company tax return due: 31 October 2026
Tax agent-lodged due: 28 February 2027
Late lodgement penalty (small entity): $330 and rising
PAYG instalments: check your instalment rate if 2025–26 revenue grew materially
Confirm BRE status (25% or 30%) before your accountant lodges

SAB Account AI tracks your income categories, calculates super per pay run, and flags your BRE status automatically — try it free before 30 June.

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Frequently asked questions

What is the company tax rate in Australia for 2025–26?

The company tax rate is either 25% or 30% depending on your business. If your aggregated turnover is under $50 million and passive income is 80% or less of total income, you pay 25%. Otherwise, the standard 30% rate applies.

Does the 25% small business tax rate apply automatically?

No — you must meet both the turnover test (under $50 million aggregated) and the passive income test (no more than 80% passive income) in the relevant income year. The ATO assesses eligibility fresh each year based on your tax return.

Can a sole trader access the 25% company tax rate?

No. Sole traders are not companies and are taxed under individual income tax rates, which range from 0% to 45% plus Medicare levy. To access the 25% company rate, you must operate through a Pty Ltd company structure.

Is super deductible for company tax purposes?

Yes — superannuation contributions for employees and the company director are deductible, but only in the year the fund actually receives the money. Contributions accrued but not paid before 30 June 2026 will be a 2026–27 deduction, not a 2025–26 one.

What happens if my company's turnover crosses $50 million mid-year?

The tax rate test is applied to your full-year aggregated turnover figure, not a mid-year snapshot. If your total 2025–26 aggregated turnover reaches $50 million or above, the 30% rate applies for the entire 2025–26 income year — you cannot pro-rate the rates.