Corporate Tax Rates In Australia

If you are running a business in Australia, you’ll need to wrap your head around corporate tax rates — not just for your own financial planning but to make sure you’re compliant with the Australian company tax rate. The corporate tax rate directly impacts your business’s bottom line and determines how much of your profits you’ll need to pay to the Australian Taxation Office (ATO).

Here’s what you need to know about the full company tax rate in Australia, as well as what you need to consider around foreign companies, tax deductions, regulatory changes and more.

The standard corporate tax rate in Australia

The standard tax rate on corporate income is 30% in Australia, which applies to most companies that don’t meet the criteria for small business concessions.

This rate applies to taxable income — in other words, your company’s assessable income minus any allowable deductions (e.g. operating costs, depreciation, eligible expenses).

All resident companies (i.e. businesses incorporated in Australia) must pay tax on their worldwide income, meaning profits that are earned both domestically and internationally. For non-resident companies operating in Australia, the tax only applies to Australian-sourced income.

Lower tax rate for base rate entities

Smaller businesses enjoy a lower company tax rate of 25%, provided they qualify as ‘base rate entities’. Essentially, what that means is that your company must:

• Have aggregated turnover of less than $50 million during the income year; and
• Get no more than 80% of your assessable income from passive sources (e.g. dividends, rent, interest, capital gains).

It’s a small way that the government is helping small to medium-sized businesses reinvest their profits into more growth opportunities.

How to calculate corporate income tax payable

The formula for calculating corporate tax in Australia is simple:

Assessable income – Allowable deductions = Taxable income

Once you have your taxable income, you just use the relevant corporate income tax rate:

• 30% for standard companies.
• 25% for eligible base-rate entities.

Let’s say your company’s taxable income is $300,000, and you qualify for the base-rate entity tax rate. Your corporate tax bill would be:

$300,000 x 25% = $75,000

Assessable income and allowable deductions

Assessable income includes:

• Revenue from selling goods and services.
• Rental income (if your business leases property).
• Interest, dividends, capital gains.
• Government grants and payments.

Allowable deductions (what reduces your taxable corporate income) include:

• Operating expenses (rent, wages, utilities).
• Depreciation of assets (machinery or vehicles).
• Marketing and advertising costs.
• Professional fees (legal and accounting services).

Corporate tax for foreign companies

Non-resident companies that are operating in Australia are only taxed on the income they make in Australia, which is at the standard 30% rate.

If a double taxation agreement (DTA) exists between Australia and the company’s home country, it can help prevent the same profits from being taxed twice. These agreements are in place to establish which country has taxing rights – usually based on things like permanent establishment.

Capital gains tax and corporate tax

Australian companies also pay tax on capital gains, which is when the business sells assets (e.g. property, shares, intellectual property) for a profit. The ‘gain’ is included as part of the company’s assessable income, and the standard company tax rates apply.

There are some cases where small businesses can be eligible for capital gains tax (CGT) concessions, including:

• 15-year exemption: If your business has owned the asset for 15 years and is retiring, the capital gain could be entirely tax-free.
• Rollover relief: This lets your business defer tax if you reinvest the proceeds into new assets.

Always consult a tax advisor about your obligations.

Goods and services tax (GST) vs corporate tax

It’s important that you don’t confuse corporate tax rates with GST. The goods and services tax (GST) is a 10% tax on almost everything sold in Australia, including services. Companies collect this tax from customers and then pass it on to the ATO.

Corporate tax, on the other hand, is based on profit – the difference between income and expenses.

Corporate tax rates over time

Australia’s corporate tax rates have evolved over the years. Pre-2017, there was a single corporate tax rate of 30% for all companies. But then, over the next four years, the base-rate entity concept was introduced, with rates progressively lowering to 25%. As of 2021, we now have the dual-rate system fully implemented (30% standard rate, 25% base-rate entity rate).

Fringe benefits tax (FBT)

While not directly part of corporate tax rates, your business will also need to account for fringe benefits tax (FBT) if you give your employees any non-salary perks. These can include lots of different things, but some of the most common ones are:

• Personal use of company cars.
• Gym memberships.
• Meals or entertainment costs.

FBT is taxed at 47% on the grossed-up value of these benefits. Again, remember that this is separate from corporate Australian income tax and will impact your overall tax planning.

Corporate tax planning strategies

Did you know that you can legally minimise your corporate tax through a few simple strategies? Speak to your accountant or tax advisor to see if you can leverage any of the following:

• Take full advantage of allowable tax deductions.
• Structure your company so that you can be eligible as a base-rate entity.
• Time your income recognition and expenses.
• Use small business CGT concessions.
• Keep good records to claim all the offsets and deductions you are entitled to.

Common mistakes when managing corporate tax

Some of the most common tax-related mistakes businesses make include misclassifying certain income or expenses or not claiming all your eligible deductions. This is where your accountant can come in very handy.

Also be wary that you don’t overlook any capital allowances and depreciation deductions. And if you really aren’t eligible for the base rate entity tax rate, don’t try to claim it. Finally, make sure you hit all the tax-lodgment deadlines so you don’t incur any fines.

Why you should be working with tax professionals

Given the complexity of corporate tax rates and tax laws that can change over the years, many businesses work with registered tax agents and accountants. Tax experts will ensure your company is applied with the correct corporate tax rate while also helping you take advantage of all the available concessions. They will be able to give you advice for your specific situation.

Whether you are in charge of a large corporation or run your own small business, being aware of your tax obligations and any eligible deductions will help your business to stay on the right side of the ATO.