Small business tax in Australia is a system of taxes: income tax that changes shape depending on your structure, GST once you cross the registration threshold, PAYG in two different flavours, super obligations that just changed again, and a state payroll tax waiting for you once your wages bill grows.
Most owners learn this system one penalty at a time. This guide is the other option.
We have written it for the people we work with every day: owners of small and medium businesses, mostly in Victoria, who did not start a business because they love tax. It covers what you actually pay, what you can claim, what changed on 1 July 2026, and the habits that keep the ATO boring. Each chapter stands on its own, so skip to the one that is keeping you up at night.
What you’ll learn
- Which business structure pays which rate of tax, and the signs yours no longer fits
- The registrations and taxes that apply to you: income tax, GST, PAYG, payroll tax and FBT
- The deductions and concessions worth real money in 2026-27, and what the ATO is watching
- What Payday Super changed on 1 July 2026 and how to keep payroll compliant
- A provisioning routine that means BAS and tax bills never catch you short
- When it is worth paying an accountant, and what you should get back for the fee
1. How your business structure sets your tax bill
Your structure is the single biggest tax decision you have made, whether you made it deliberately or not. Most owners inherited theirs from whatever was easiest on day one.
Australia gives you four main options, and they are taxed very differently.
Sole trader. Business profit is your personal income, taxed at your marginal rate. Simple and cheap to run, and you can access the small business income tax offset. The catch arrives with success: once profit pushes you well into the 30 per cent bracket, every extra dollar is being taxed harder than a company would pay.
Partnership. The partnership lodges a return but pays no tax itself. Profit flows through to the partners, who each pay at their own marginal rate. Same simplicity as a sole trader, same problem at scale, with the added complication that each partner is exposed to the debts of the business.
Company. A separate legal entity. Most trading small businesses qualify as base rate entities and pay a flat 25 per cent, provided aggregated turnover is under $50 million and no more than 80 per cent of income is passive. Profits can stay in the company at that rate until you need them. The trade-offs: more compliance, and money in the company is not your money. Taking it out has its own tax consequences.
Trust. Usually a discretionary (family) trust with a corporate trustee. The trust distributes profit to beneficiaries, who pay tax at their own rates. Done well, it gives flexibility and asset protection. Done badly, it is an expensive way to confuse yourself. Trustees also face real deadlines, like resolving distributions before 30 June.
The signs your structure no longer fits
A structure that suited a $90,000 side business rarely suits a $600,000 operation with staff. The common triggers we see:
- Profit has grown and you are leaving money in the business anyway, but paying personal marginal rates on it
- You have taken on staff, premises or debt, and your family home is exposed
- A second owner, investor or family member has entered the picture
- You are starting to think about selling or handing over one day
Restructuring has capital gains tax consequences, and there are rollovers that can defer them if the change is done properly. This is not a DIY job. It is exactly the conversation our business advice service exists for, and we have written a full post on reviewing your business structure for the new financial year.
Key takeaway: your structure decides your tax rate, your asset protection and your exit options. Review it when profit, people or risk change, not when something breaks.
2. The taxes your small business actually pays
Owners often talk about “tax” as one bill. It is at least six potential ones, and knowing which apply to you removes most of the fear.
Income tax. How it lands depends on chapter 1: your marginal rate as a sole trader or partner, 25 per cent for most small companies, or at beneficiary rates through a trust. If you are unincorporated with turnover under $5 million, the small business income tax offset gives you back 16 per cent of the tax on your business income, capped at $1,000 a year. Small, but it is money.
GST. Registration becomes compulsory once your turnover reaches $75,000. You then charge 10 per cent on taxable sales, claim credits on what you buy, and report through a business activity statement, quarterly for most small businesses. The GST you collect was never yours. Treat it that way from the first invoice and BAS time becomes an admin task instead of a crisis.
PAYG withholding. The moment you employ people, you withhold tax from their wages and pass it to the ATO, reported in real time through Single Touch Payroll. This applies to directors paying themselves a wage too.
PAYG instalments. Once you are earning business or investment income, the ATO asks you to prepay your own income tax in instalments across the year, usually quarterly. It surprises people in year two: the first year you pay the full bill, then instalments for the next year start on top of it. Plan for that double hit.
Payroll tax. A state tax, not an ATO one. In Victoria it only starts once your annual Australian wages cross the tax-free threshold, which moved to $1 million from 1 July 2025. Growing businesses cross it earlier than they expect, because “wages” includes super, some contractor payments and fringe benefits. If your wages bill is heading that way, get ahead of it.
Fringe benefits tax. If the business provides cars, entertainment or other personal benefits to you or your staff, FBT can apply, and the rate is punishing. The classic small business trap is the vehicle. Rules exist for genuine work utes and vans, but they are narrower than pub wisdom suggests.
Our taxation and statutory compliance services cover all of this end to end, from registrations to lodgement.
Key takeaway: six taxes can touch a small business: income tax, GST, PAYG withholding, PAYG instalments, payroll tax and FBT. Know which apply now and which one your growth will trigger next.
3. Small business tax deductions and concessions worth real money
The rule itself is short: if you spend money to earn your assessable income, and you have the records to prove it, you can generally deduct it. Private use has to be apportioned out. Everything else is detail, and the detail is where the money is.
The deductions that matter most for the owners we see:
- Motor vehicles. Logbook method usually beats cents per kilometre for genuine business use, and it is the first thing the ATO checks
- Home-based business costs, where part of your home genuinely functions as your place of business
- Tools, equipment and technology, immediately deductible under the instant asset write-off when the threshold and dates line up with your purchase (check the current-year status before relying on it, the threshold has been a moving target from budget to budget)
- Insurance, professional fees, subscriptions and interest on business borrowings
- Super contributions for yourself. Concessional contributions are taxed at 15 per cent in the fund rather than at your marginal rate, which is why owners plan around them. More in chapter 4
- Prepayments. Small business entities can deduct up to 12 months of prepaid expenses in the year they pay them, which is a legitimate 30 June lever
Two warnings that save fees and stress. First, a deduction without a record is not a deduction, it is a future adjustment with interest. Second, the ATO publishes exactly what it plans to look at each year, and every year it includes small business expense claims that do not match reality. We covered this year’s list in what the ATO is watching at tax time 2026.
The concessions are the quieter half of the story. Base rate entity status (chapter 1), the income tax offset (chapter 2), simplified depreciation, and the small business CGT concessions, which can wipe out most or all of the tax on selling a business you have built. The CGT concessions alone justify a planning conversation years before any sale.
Key takeaway: claim everything you are entitled to, nothing you cannot prove, and plan the big-ticket items (assets, prepayments, super) before 30 June, not at it.
4. Super obligations in 2026-27: Payday Super and beyond
Super is where the rules genuinely moved in 2026-27, so this chapter is current affairs as much as evergreen.
The super guarantee is 12 per cent. The staged increases finished on 1 July 2025. Every eligible employee, including working directors, accrues super at 12 per cent of ordinary time earnings.
Payday Super started on 1 July 2026. The quarterly super cycle is gone. Super now has to move with the pay run, reaching employees’ funds within seven business days of payday rather than 28 days after quarter end. The compliance risk is real, but the bigger day-to-day shift is cash flow: money that used to sit in your account for months now leaves every cycle. If your payroll setup has not been reviewed since June, that is overdue. We wrote a full guide in Payday Super: what Melbourne employers need to do.
Contribution caps went up on 1 July 2026. For owners, the concessional cap is a planning tool, not just a limit: contributions to your own super are generally deductible and taxed at 15 per cent in the fund instead of your marginal rate. The new caps widen that opportunity, and carry-forward rules can widen it further if your balance is under the threshold. Details and figures in the new super contribution caps.
Division 296, for the big end of super. If your total super balance is heading past $3 million, an additional tax now applies to realised earnings attributable to the portion above that level, with a higher rate again past $10 million. Most small business owners are not there yet, but owners who have sold a business into super, or plan to, need to know the rules before the balance crosses the line. We explain the mechanics in Division 296 explained.
For owners, super sits exactly where tax planning meets wealth planning. Getting the employer obligations right is compliance. Using the caps deliberately is strategy. Our superannuation and financial planning services work on both sides of that line.
Key takeaway: pay 12 per cent, pay it with every pay run, and understand the contribution caps before 30 June. They are where tax planning and wealth planning meet.
Request a free consultation
Not sure your payroll or structure is ready for 2026-27? Talk it through with BNR. The first conversation is free, or call 1300 226 722.
5. Cash flow: how to never be surprised by a tax bill
Almost every “tax problem” that walks through our door is a cash flow problem wearing a disguise. The tax was always going to be payable. The money just was not there when it fell due.
The fix is a routine, not a rescue. Here is the one we put in place with clients:
- Open a separate tax account. A second bank account the business does not trade from. Out of sight is the point.
- Provision every week or every pay run. Move the GST on your sales, the PAYG you have withheld, and now the super for the pay run, straight into the tax account. A simple percentage of takings works once it is calibrated to your numbers.
- Run a rolling cash flow forecast. 13 weeks forward, updated weekly, with BAS, instalments, super and any tax debt repayments sitting in it as line items on their real due dates. We walked through the mechanics in our cash flow forecast guide.
- Review margins quarterly. Provisioning fails when the underlying margin has quietly gone backwards. Victorian costs, energy, insurance, wages and rents have all moved, and we broke down the pressure points in the rising cost of doing business in Victoria. If margins have slipped, reprice or re-cost before the next quarter locks it in.
Payday Super makes this discipline non-negotiable. The float period where super money sat in your account is gone, so a business that was quietly using it as working capital now needs that working capital from somewhere real.
If the forecast keeps saying the same uncomfortable thing, the problem sits deeper than the spreadsheet. Our cash flow management and budget setting and comparison reporting services exist to turn the forecast into decisions.
Key takeaway: provision for GST, PAYG and super every single pay cycle into an account you do not touch. A tax bill you saw coming 13 weeks out is just a payment.
6. Record keeping and bookkeeping that keep you compliant
The ATO’s rule is blunt: keep records that explain every transaction, for five years, and be able to produce them. Digital records are fine. “The bookkeeping is in my head” is not, and it fails at the worst moments: an audit, a loan application, a sale.
What good looks like in 2026 is not complicated:
- Accounting software with live bank feeds. We work in Xero daily and BNR is a Xero Silver Partner, but the honest answer is that the best software is the one that gets reconciled. Weekly.
- Every payroll event through Single Touch Payroll, which is also how Payday Super compliance gets tracked.
- Receipts captured at the moment they happen, photographed into the software, not collected in the glovebox for a July archaeology dig.
- A monthly close. Reconciled accounts, a glance at profit against last year, debtors chased. One hour a month prevents most 30 June surprises.
Bookkeeper or accountant? Both, doing different jobs. A bookkeeper (or well-run software plus discipline) keeps the record straight through the year. An accountant turns that record into tax outcomes and decisions. Paying accountant rates for data entry wastes money. Handing an accountant a shoebox wastes more, because the fee goes on cleanup instead of planning.
Our bookkeeping service covers the first job, and it feeds everything else in this guide: you cannot provision, forecast or plan from numbers that are three months behind.
Key takeaway: reconciled weekly, closed monthly, kept five years. Clean books make every tax strategy in this guide possible.
7. When to bring in an accountant, and what you should get back
You do not need an accountant to start a business in Australia. Plenty of sole traders lodge their own returns for years and do it perfectly well. The question is when doing it yourself starts costing more than it saves.
The trigger points we see, over and over:
- Your first employee. PAYG withholding, STP, super with every pay run, maybe workers compensation. The penalty regime assumes you know all of it.
- GST registration. Your pricing, invoicing and provisioning all change at once.
- Profit growth. Once you are solidly in the 30 per cent bracket, structure and planning stop being optional extras (chapter 1).
- A structure change, a partner, a property, a sale. One-off decisions with long tax shadows.
- Letters from the ATO that you are not sure how to read. Early advice is cheap. Late advice is a payment plan.
What should the fee buy you? Not just lodgement. A good small business accountant should be talking to you before 30 June while the numbers can still be changed, not after, and should be across your structure, your super strategy and your cash flow, because chapters 1 to 6 of this guide are one system, not six separate topics. If all you get each year is a tax return and an invoice, you are buying compliance and calling it advice.
On cost: fees vary with the state of your records and the complexity of your affairs, which is the honest reason no one publishes a single number. What we can say is that the fee is itself deductible, and that the expensive accountant is usually the one you did not talk to before the decision.
That standard is the one we hold ourselves to. BNR Business Accountants was a finalist for Best Accounting and Consulting Services Firm at the 2021 Client Choice Awards, judged on client feedback. We work with trades, retail, hospitality, healthcare and professional services businesses from our Seaford office and remotely across Australia, and when the time comes to think about what happens after you, our succession planning service handles the longest-shadow decision of all.
Key takeaway: bring an accountant in at the trigger points, and expect planning as well as paperwork. Advice before the decision is a deduction. Advice after it is a repair bill.
Request a free consultation
Ready to build a business that funds your lifestyle? Talk to BNR about your numbers. The first conversation is free, and there is no obligation, or call 1300 226 722.
FAQs
How much tax does a small business pay in Australia?
It depends on structure. Sole traders and partners pay their personal marginal rates on business profit. Most small companies qualify as base rate entities and pay a flat 25 per cent. Trusts distribute profit to beneficiaries who pay at their own rates. On top of income tax, GST, PAYG, payroll tax and FBT can apply depending on size and setup.
What is the small business company tax rate in 2026-27?
25 per cent for base rate entities: companies with aggregated turnover under $50 million where no more than 80 per cent of income is passive. Companies outside that definition pay 30 per cent.
When do I have to register for GST?
Registration is compulsory once your GST turnover reaches $75,000 (higher for not-for-profits), or immediately if you drive taxis or ride-share. Many businesses register earlier voluntarily to claim GST credits on their costs.
What is Payday Super and when did it start?
From 1 July 2026, employers must pay super with each pay run so it reaches employees’ funds within seven business days of payday, replacing the old quarterly deadline. It changes payroll process and cash flow rhythm for every employer.
What is Division 296 tax?
An additional tax on realised earnings attributable to the portion of a total super balance above $3 million, with a higher rate applying above $10 million. It affects a small minority of people, but business owners who have sold into super, or plan to, should understand it before their balance approaches the threshold.
How long do I need to keep business records?
Five years, and they must explain every transaction. Digital copies are acceptable as long as they are complete, readable and backed up.
Do I need an accountant for my small business in Australia?
Not legally. Practically, the trigger points are your first employee, GST registration, meaningful profit growth, any structure change and any ATO correspondence you are unsure about. From those points on, good advice usually pays for itself.
How much does an accountant cost for a small business in Australia?
There is no single honest number: the fee tracks the complexity of your affairs and the state of your records. A simple sole trader return sits at the low end; a company or trust with payroll and planning costs more. The fee is tax deductible, and clean books keep it down.
Is a bookkeeper cheaper than an accountant?
Per hour, yes, and that is the point: a bookkeeper keeps your records straight through the year so your accountant’s time goes on tax outcomes and planning instead of data entry. Most growing businesses need both, doing different jobs.
What is the small business income tax offset?
An offset for sole traders and individuals with business income from a partnership or trust, where turnover is under $5 million. It refunds 16 per cent of the tax on your business income, capped at $1,000 per year, and the ATO calculates it automatically from your return.
This guide is general information only, not personal financial or tax advice. Your situation is specific, so talk to us, or your own adviser, before acting on anything here.
