Company tax – What is company tax?
Company tax is a tax charged on corporate income in Australia.
As a small business owner, you’re responsible for your company taxes. Find out more about tax accounting, what it involves, and how you should manage company taxes.
Unlike corporation tax in the UK, company tax is not technically a distinct or separate tax. Instead, it is a particular rate of income tax that only applies to incorporated businesses.
Company tax is a federal tax, which means that it is set by the central Australian government rather than the state or municipality.
Who pays company tax?
Most businesses operating in Australia will pay income tax, but not all will pay company tax rates. Any business that is considered a ‘company’ (that is, a distinct, legal entity that submits its own tax returns) will be liable for company tax rates. If you’re a sole trader, you will pay income tax at the same rate as individuals.
Any company that is ‘resident’ of Australia can be taxed on income from anywhere in the world, not just from Australia. Usually, companies that are not considered ‘residents’ of Australia should only pay company tax on income generated in Australia. You can find out your business’s residency status on the Australian Taxation Office’s website.
How much is company tax?
There is no tax-free threshold for company tax, which means that most of a company’s income is taxable. The portion of a company’s income that can be taxed is known as ‘assessable income’; it is calculated by deducting allowable expenses from total income. Assessable income does not include GST collected on sales.
In the 2018-2019 tax year, the full rate for company income tax is 30%; however, many small businesses will only pay a rate of 27.5%. This 27.5% rate applies to ‘base rate’ entities, which must have a turnover of less than $25 million and earn 80% or less of their income through ‘passive income’, which covers things such as capitals gains, royalties, rent, and interest.
A few specific types of business (e.g. credit unions, life insurance companies, and not-for-profit organisations) have different rates of company tax specific to their industry.
How to pay company tax
Company tax is assessed and calculated by the Australian Taxation Office through an annual tax return.
Many businesses will also need to register for the PAYG (pay as you go) system. Under PAYG, you will make regular payments towards your annual income tax bill. This reduces the amount you have to pay after submitting your yearly tax return. If you do pay PAYG instalments, you will still need to submit an annual income tax return.
