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What is the tax rate for your small business?

What is the tax rate for your small business?

Make sure you’re up to date with the latest tax rates for your business.

Your income tax rates can change every year. So whether you’ve been in business for years or have only recently started your business, make sure you’re using the correct rate for your tax reporting this year. The correct rate will depend on the type of business you’re running.

Sole trader

Your sole trader income is treated like personal income for tax purposes. This means you’ll typically pay the same income tax rate as an individual and only need to lodge one tax return.

Other key points

  • Individual income rates apply – the Australian Taxation Office (ATO) website has the latest information
  • Tax-free threshold applies 
  • You can lodge one tax return under your personal tax file number (TFN) for your personal and business income

Partnership

Your partnership doesn’t pay any income tax. Instead, individual partners pay tax on their share of the partnership income (profits) at the individual income rates.

Other key points

  • Tax-free threshold applies for individual partners
  • Lodge one partnership tax return under your partnership’s TFN and a tax return for each partner under their own TFN

Company

For small business companies you’ll pay tax at the small business company rate; otherwise you’ll generally pay the company tax rate. There are some exceptions such as non-profit and life insurance companies.

Other key points

  • The ATO website has the full list of company tax rates
  • No tax-free threshold applies
  • Lodge one company tax return under your company TFN and a tax return for each director under their own TFN

Trust

The tax rate that applies to trusts depends on your trust type, how you distribute your net income and who receives it. If you distribute all your trust income, your individual beneficiaries will generally pay tax at the individual income rates (unless they’re under 18 years old or a non-resident).

Other key points

  • The trustee will pay tax on behalf of any beneficiary under 18 years old or a non-resident
  • Any income that is left in trust will have the highest marginal individual income rate applied
  • Typically, your trustee will need to lodge a tax return under the trust’s TFN on behalf of the trust, and the beneficiaries will also need to lodge a tax return under their own TFNs
  • Make sure you know the specific rules that apply if you have a type of trust that is a little more complex such as a unit trust, family trust or charitable trust.

Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank of Australia is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law. This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. You should consider seeking independent financial advice before making any decision based on this information