Small Business Tax in Australia 2025: What Every Owner Needs to Know

For small business owners in Australia, tax obligations are as critical as managing operations or winning new clients. Yet the small business tax rate often shifts with annual budgets, eligibility changes, and compliance updates.

In 2025, knowing your exact position is vital to avoiding costly mistakes and seizing growth opportunities. Whether you’re preparing your return, planning for EOFY, or exploring deductions, staying informed on current rates and offsets is key  and trusted accounting professionals can help you navigate the process with confidence.

Let’s look at what has changed, what remains the same, and how it impacts your business.

Defining “Small Business” in Australia

The term small business in Australia isn’t just about revenue  it also takes into account your size, structure, and staffing.

Broadly, the categories are:

• Non-employing business: Sole traders with no staff

• Micro-business: 1–4 employees

• Small business: 5–19 employees

• Nano business: Less than $75,000 annual turnover

This classification matters because it can determine your eligibility for specific tax benefits, such as the small business tax offset or reduced company tax rates. For perspective, around 97% of all Australian businesses fall into this category  making small business the backbone of our national economy.

The Small Business Tax Rate: 2025 Snapshot

For incorporated businesses meeting the “base rate entity” criteria  turnover under $50 million and no more than 80% of income from passive sources  the company tax rate remains at 25% in 2025.

That’s significantly lower than the top marginal personal income tax rate and serves as an incentive for some sole traders to consider incorporation.

However, business structure changes aren’t just about the tax rate  they also affect compliance, reporting, and long-term financial planning. Sole traders and partnerships are taxed at individual rates, while companies enjoy the flat 25% rate, and trusts distribute income to beneficiaries who pay tax at their personal rates.

Sole Trader Tax Rates (2025–26)

If you operate as a sole trader, your business profits are treated as personal income and taxed accordingly. The official tax brackets for Australian residents are:

Taxable Income ($)	Tax Rate
Up to 18,200	0%
18,201 – 45,000	16%
45,001 – 135,000	30%
135,001 – 190,000	37%
Over 190,000	45%

A 2% Medicare levy applies on top of this. The upcoming stage-three personal tax cuts (from July 2026) will further lower the marginal rates, but those changes are still a year away.

For small business owners, this means effective tax planning is critical  from leveraging deductions to considering a restructure that could lead to better after-tax outcomes.

Trust Structures

Trusts don’t pay tax directly. Instead, profits are distributed to beneficiaries, who are taxed at their individual rates. This allows income splitting, potentially lowering the overall tax burden.

However, trusts require careful administration and compliance, and the flexibility they offer needs to be balanced against higher setup and management costs.

Core Tax Obligations for Small Businesses

Regardless of your structure, the 2025–26 financial year brings four main taxes that may apply to you:

1. Goods and Services Tax (GST) – 10% on most goods and services. Mandatory registration if turnover is $75,000 or more.

2. Fringe Benefits Tax (FBT) – Applies if you provide non-cash benefits to employees (e.g., company cars, entertainment).

3. Payroll Tax – State-based; thresholds and rates vary by location.

4. Income Tax – Varies based on business structure; companies pay the 25% small business rate, sole traders and trusts follow individual rates.

Each of these comes with its own compliance requirements, reporting deadlines, and planning opportunities.

Why This Matters Now

Tax isn’t just a once-a-year consideration. It’s a year-round strategy tool. The way your business is structured, how you manage payroll, and even how you time certain transactions can influence your cash flow and profitability.

For example:

• A sole trader earning $60,000 will pay no tax on the first $18,200, 16% on the next $26,800, and 30% above $45,000  plus Medicare levy.

• A company with the same profits would pay a flat 25%, potentially leaving more capital in the business for reinvestment.

Choosing between these structures isn’t just about the headline rate  it’s about what works best for your growth goals, risk profile, and long-term plans.

The Bottom Line for 2025

Navigating Australia’s small business tax rate takes more than knowing the numbers  it’s about understanding how structure, income, and location shape what you owe and what you can save.

Whether you’re a sole trader, a company paying the flat 25% rate, or a trust distributing income, your tax strategy should be tailored to your circumstances. In 2025–26, leveraging opportunities like the small business tax offset can make a real difference to your bottom line.

From understanding the small business income tax rate to meeting small business tax return Australia deadlines, now is the time to ensure you’re not just compliant, but also making smart, future-ready financial decisions. You need guidance and expert support to optimise your tax position, now is the right time to start the conversation.