Australia has two company tax rates: 25% for base rate entities (small to medium companies with aggregated turnover below $50 million and passive income restrictions) and 30% for larger companies. Company income tax is a flat rate — unlike individuals, companies do not use progressive brackets.
The Two Company Tax Rates (FY2025–26)
| Company type | Tax rate |
|---|---|
| Base rate entity | 25% |
| All other companies | 30% |
Base rate entity — a company qualifies for the 25% rate if:
- Its aggregated turnover is less than $50 million, and
- No more than 80% of its assessable income is passive income (interest, dividends, rent, royalties, net capital gains)
The 80% passive income test was introduced to prevent wealthy individuals from using companies purely to shelter investment income at the lower rate.
How Company Tax Works
A company is a separate legal entity for tax purposes. It files its own tax return and pays tax on its taxable income (gross income minus allowable deductions) at the relevant flat rate.
Unlike individuals, companies:
- Have no tax-free threshold
- Do not use progressive brackets
- Do not access LITO or other personal offsets
- Pay tax at the same rate whether profit is $1 or $1 million
Tax is paid in two ways: through the PAYG instalment system (quarterly pre-payments if the company has significant income) and by the annual tax assessment after lodgement of the company tax return.
Franking Credits and Company Tax
When a company pays a dividend from profits that have already been taxed at the company rate, it attaches a franking credit to the dividend. The shareholder includes the grossed-up dividend in their assessable income but receives a credit for the corporate tax already paid.
Example with base rate entity (25% tax):
- Company earns $100, pays 25% tax = $75 profit after tax
- Pays a $75 dividend with a $25 franking credit
- Shareholder includes $100 in income, claims $25 credit
- At a 32.5% marginal rate: tax on $100 = $32.50, less $25 credit = $7.50 net tax
Example with standard company (30% tax):
- Company earns $100, pays 30% tax = $70 profit after tax
- Pays a $70 dividend with a $30 franking credit
- Shareholder includes $100 in income, claims $30 credit
- At a 32.5% marginal rate: tax on $100 = $32.50, less $30 credit = $2.50 net tax
For shareholders in lower tax brackets (including retirees), excess franking credits are refunded — the credit exceeds their tax liability and they receive a cash refund.
Small Business Tax Offset
Individuals who run a business through a sole trader or partnership structure (not a company) may be eligible for the small business income tax offset — a reduction in tax of up to $1,000 for businesses with turnover under $5 million. This is a personal tax offset, not a company concession.
When to Consider a Company Structure
The decision to operate through a company (rather than as a sole trader or trust) involves tax considerations but also legal, administrative, and cost factors. General considerations include:
- The 25% company rate may be lower than your personal marginal rate if your income is high
- Company profits are taxed in the company; you are taxed again when you draw out funds as salary or dividends
- Franking credits pass through to shareholders, mitigating some of the double-tax concern
- Companies have higher compliance costs — separate tax return, ASIC fees, bookkeeping
A decision to incorporate should be made with professional advice from an accountant, as the tax outcome depends on your income level, how profits will be used, and the long-term business structure.
Frequently Asked Questions
What is the company tax rate in Australia? The rate is 25% for base rate entities (companies with aggregated turnover under $50 million and predominantly active income) and 30% for all other companies.
Do companies pay the Medicare levy? No. The Medicare levy applies only to individuals. Companies pay no Medicare levy.
How does a company pay tax if it makes a loss? A company that makes a tax loss does not pay company tax for that year. The loss can be carried forward to offset future years’ taxable income (subject to the continuity of ownership test or the same business test). Losses cannot be carried back to prior years in most circumstances under current rules (a temporary loss carry-back for COVID-related years has ended).
Can a family trust use the 25% company tax rate? No. Trusts are not companies — trust distributions are taxed in the hands of the individual beneficiaries at their personal rates. To access the 25% company rate, the trust would need to distribute to a corporate beneficiary, which is a complex structure requiring professional advice.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.