Australian Small Business Tax Guide 2025-26

Running a business in Australia means navigating a tax system with several distinct obligations that interact with each other in ways that are not always obvious. Income tax, GST, superannuation, payroll reporting, and potentially payroll tax all operate on different schedules, different thresholds, and different rules depending on how your business is structured.

This guide covers the full picture for Australian small businesses: what tax rates apply to your structure, what you can deduct, what concessions are available to you, and what the compliance obligations look like across the year. If you would rather hand this to someone who knows it inside out, H&R Block's tax consultants handle small business tax returns, BAS lodgement, and year-round tax planning for businesses across every industry.
 

What Tax Obligations Does a Small Business Have in Australia?

Most Australian small businesses are required to manage at least three core tax obligations, with additional ones depending on whether they employ staff or cross certain turnover thresholds.
 

Obligation	Who it applies to
Income tax return	All business structures - timing and rate depend on structure
GST and BAS lodgement	Businesses must register for GST if their turnover hits $75,000+. Ride-share drivers must register regardless of earnings. Below the threshold, registration is optional.
Superannuation guarantee	All businesses that employ eligible workers
PAYG withholding	All businesses that pay wages or salaries to employees
Single Touch Payroll reporting	All employers from their first employee
Payroll tax	Businesses whose total wages exceed the state threshold (varies by state)
PAYG Instalments	Businesses with a prior year tax liability above the ATO threshold

The combination of obligations varies considerably by business size. A sole trader earning under $75,000 with no employees generally just needs to lodge an individual tax return. The exception is ride-share drivers, who must also register for GST and lodge a BAS regardless of their turnover.. A company with staff and significant turnover faces the full suite.
 

Small Business Tax Rates by Business Structure

The rate at which a small business pays tax is determined by its legal structure, not by how much it earns. This is one of the most commonly misunderstood aspects of the Australian tax system for new business owners.

Sole Trader

A sole trader pays tax at individual marginal rates on their total taxable income - business profit plus any other personal income combined. For 2025-26, the rates are: nil on the first $18,200, 16% on $18,201 to $45,000, 30% on $45,001 to $135,000, 37% on $135,001 to $190,000, and 45% on income above $190,000.

Sole traders may also be eligible for the Small Business Income Tax Offset of up to $1,000. The offset is calculated as 16% of the tax attributable to the net income from the business, capped at $1,000, and is only available where the business has a turnover under $5 million.
 

Partnership

A partnership does not pay income tax itself. The net income of the partnership is distributed to each partner according to their partnership agreement, and each partner pays tax on their share at their individual marginal rates. The same Small Business Income Tax Offset applies to individual partners.
 

Company (Pty Ltd)

A company is taxed as a separate legal entity at a flat rate of 25% for base rate entities with a turnover under $50 million. The 25% rate applies where no more than 80% of the company's income is passive income (interest, rent, royalties, or distributions from other entities). Companies with turnover above $50 million pay the standard corporate rate of 30%.

The flat company rate can be an advantage for businesses earning above the 37% or 45% individual marginal rate thresholds, though the tax profile of the overall structure - including how profits are extracted and distributed to shareholders - needs to be considered alongside the entity-level rate.

Trust

Currently a trust does not pay income tax at the trust level unless the trustee retains income rather than distributing it to beneficiaries. Distributions to individual beneficiaries are taxed at each beneficiary's marginal rate. Distributions to a corporate beneficiary are taxed at the corporate rate.

The tax efficiency of a trust depends heavily on who the beneficiaries are and what their individual tax rates are. The ATO has specific rules about trust distributions, including anti-avoidance provisions that target arrangements designed primarily to split income.

As part of the 2026-27 Federal Budget, the Government announced it will introduce a 30% minimum tax on discretionary tursts from 1 July 2028. The minimum tax will apply at the trustee level. Non-corporate beneficiaries who are presently entitled to the net income of the trust will be able to claim a non-refundable tax credit for the tax paid by the trustee on that income.
 

GST and BAS Obligations

When You Must Register for GST

GST registration is compulsory once your business’s annual GST turnover reaches or is expected to reach $75,000. For non-profit organisations, the threshold is $150,000. Taxi and ride-sourcing drivers must register for GST from their first dollar of income, regardless of turnover. Food delivery couriers and other delivery contractors are generally subject to the standard $75,000 GST turnover threshold.

Voluntary registration is available for businesses below the threshold and can be worth doing if your business purchases significant goods and services for business use, since GST credits on those purchases flow through to your BAS.
 

How GST Works

GST is a 10% tax collected on most goods and services sold in Australia. As a registered business, you collect GST on your taxable sales and pay it to the ATO via your BAS. You can claim credits for GST paid on eligible business purchases, reducing the net amount you remit.

The net GST position is: GST collected on sales minus GST credits on business purchases equals the amount you owe (or the credit you receive) for the period.
 

Business Activity Statement (BAS) Lodgement

Businesses registered for GST lodge a BAS to report and pay GST, PAYG withholding from employees, and in many cases PAYG instalments. Most small businesses lodge quarterly, though businesses with turnover above $20 million lodge monthly.

Quarterly BAS due dates for 2025-26: Q1 (Jul to Sep) 28 October, Q2 (Oct to Dec) 28 February, Q3 (Jan to Mar) 28 April, Q4 (Apr to Jun) 28 July. Using H&R Block as your registered BAS agent extends the Q1, Q3, and Q4 deadlines by four weeks and also shifts the payment deadline - a genuine cash flow benefit.
 

GST Concessions for Small Businesses

Small businesses with a turnover under $10 million have access to simplified GST accounting methods. These include the business norms method, which uses a predetermined proportion to calculate GST on sales, and the stock purchases method for retailers. These reduce the record-keeping burden without affecting the underlying GST obligation.
 

Tax Deductions for Small Businesses

A business deduction is available for expenses that are incurred in the course of earning assessable income and that are not private, capital, or domestic in nature. For most operating expenses, the test is straightforward. The areas of complexity are where business and private use overlap, such as vehicles, home offices, and phones.
 

Quick-Reference Deductions Table

Deduction Type	Key Rule
Advertising and marketing	Fully deductible if for business purposes. Costs of advertising for new staff are deductible.
Bad debts	Deductible in the year the debt is written off as bad. Must have been included in assessable income previously.
Borrowing costs	Interest on business loans is deductible for the business-use portion. Loan establishment fees over $100 are deductible over the loan term or 5 years, whichever is less.
Business travel	Fully deductible for genuine business travel. Diary or records required for overnight trips.
Car expenses	Claim business-use portion using logbook method. Cents per km (88c in 2025-26) for employees and sole traders claiming personally.
Charitable donations	Deductible only if the recipient is a Deductible Gift Recipient and the donation is $2 or more with nothing received in return.
Cleaning	Deductible for business premises. Apportioned for home-based businesses.
Computer and software	Deductible in full in year of purchase if under $20,000 (instant write-off). Otherwise depreciated over effective life.
Electricity and utilities	Fully deductible for business premises. Apportioned for home-based businesses based on business-use percentage.
Insurance premiums	Fully deductible for business-related policies: public liability, professional indemnity, business insurance.
Legal expenses	Deductible when incurred in earning income or managing business obligations. Not deductible for capital transactions.
Professional fees (accounting, tax)	Fully deductible. This includes H&R Block's fees for business tax return preparation and BAS lodgement.
Rent and lease payments	Fully deductible for business premises. Business-use proportion applies for home offices.
Repairs and maintenance	Deductible if maintaining an asset in its current state. Improvements are capital and must be depreciated.
Staff wages and superannuation	Fully deductible when paid within the required timeframes. From 1 July 2026, super must be paid each payday.
Subscriptions and memberships	Deductible for industry bodies and subscriptions directly related to earning income.
Telephone and internet	Deductible for business-use portion. Requires records to substantiate the business percentage.
Training and professional development	Deductible if related to maintaining or improving skills in the current occupation. Not deductible for career change courses.

 

Home-Based Business Deductions

For businesses that operate from home, the business-use portion of running costs is deductible. These include occupancy costs (rent or mortgage interest, council rates, land tax, home insurance) where the area used is exclusively for business, and running costs (electricity, internet, phone, cleaning) based on the proportion of time and area used for business.

The fixed rate method of 70 cents per hour for 2025-26 covers electricity, gas, internet, and phone depreciation but not depreciation of furniture or occupancy costs. Keeping an hours diary for the year is required to substantiate this claim.

Motor Vehicle Expenses

Where a vehicle is used for both business and private purposes, only the business-use portion is deductible. The logbook method involves maintaining a 12-week logbook that records every trip, establishing a business-use percentage that applies to all actual vehicle costs including depreciation. The cents per kilometre method (88c in 2025-26) covers all costs in a single rate but is capped at 5,000 kilometres per year.

Companies and trusts cannot use the cents per kilometre or logbook methods - they claim actual expenses based on documented business use.

 
Phones and Technology

For a telephone used exclusively for business, calls and line rental are fully deductible. For a phone used for both business and private purposes, only the business proportion is deductible. The ATO expects a reasonable apportionment based on actual usage, which can be established by keeping records for a representative four-week period.
 

Depreciation and the Instant Asset Write-Off

Depreciating assets are assets with a limited effective life that decline in value over time. Rather than claiming the full cost in the year of purchase, the decline in value is claimed over the asset's effective life. Small businesses have access to simplified rules that make this faster and less burdensome.
 

Instant Asset Write-Off

Eligible small businesses with an aggregated annual turnover under $10 million can immediately deduct the full cost of eligible assets costing less than $20,000 in the year of purchase, rather than depreciating them over several years. The threshold applies to each individual asset, not cumulatively.

The 2026 Federal Budget also announced a proposal to make the $20,000 instant asset write-off permanent from 1 July 2026 for eligible small businesses. However, this measure is not yet law and remains subject to the passage of legislation.

Legislation status: The $20,000 instant asset write-off threshold for 2025-26 was announced in the budget but had not been legislated at time of writing. The previous threshold of $1,000 applies under existing law until the legislation passes. Before relying on the proposed rules, confirm the latest position with the ATO or your registered tax agent or H&R Block tax professional.

The asset must be first used or installed ready for use in the relevant financial year. Purchasing before 30 June but not installing until after 1 July means the claim falls in the following year.
 

Simplified Depreciation and the General Pool

Assets that cost $20,000 or more (under the announced threshold) are added to the small business general pool rather than being individually tracked. The pool is depreciated at 15% in the first year and 30% per year thereafter using the diminishing value method. When the pool balance falls below $20,000, the entire balance can be immediately deducted.
 

Small Business Tax Concessions

Small businesses with an aggregated turnover under $10 million access a range of concessions that reduce tax liability, simplify compliance, or both. These are in addition to standard individual or company rates and deductions.
 

Small Business Income Tax Offset

Sole traders as well as individuals who have a share of net small business income from partnerships or a trust  can claim a tax offset of up to $1,000 on their business income. The offset is 16% of the tax payable attributable to the net small business income, capped at $1,000. The business must have a turnover under $5 million to qualify.
 

PAYG Instalment Concession

Instead of calculating quarterly PAYG instalments using actual income, small businesses can use the instalment amount calculated by the ATO based on the prior year's income adjusted for GDP growth.

This saves the time and complexity of the long-form calculation and is available for businesses with a turnover under $50 million.

Instalments can be varied if actual income is expected to differ materially from the prior year. Underestimating by more than 15% of the actual liability results in interest charges, so variations should be based on a realistic income forecast.

 
Capital Gains Tax Concessions for Small Businesses

Small businesses with an aggregated turnover under $10 million, or whose assets excluding the main residence and super interests are under $6 million, may access four CGT concessions when disposing of active assets. These concessions are among the most valuable in the Australian tax system and can significantly reduce or eliminate a capital gain on the sale of a business or its assets.
 

15-Year Exemption

Where a small business owner has continuously owned an active asset for at least 15 years and is aged 55 or over, retiring or permanently incapacitated, the entire capital gain on disposal is exempt. This is the most generous of the four concessions and can produce a complete CGT exemption on a business sale.
 

50% Active Asset Reduction

The capital gain on disposal of an active asset can be reduced by 50%. This is in addition to the general 50% CGT discount available to individuals who have held an asset for more than 12 months, potentially resulting in a 75% reduction in the taxable gain for qualifying individuals.
 

Retirement Exemption

Up to $500,000 lifetime of capital gains can be exempted from CGT if the proceeds are used in connection with retirement. If the owner is under 55 at the time of the disposal, the exempt amount must be contributed to superannuation.
 

Small Business Rollover

A capital gain can be deferred if a replacement active asset is acquired within two years. The gain is deferred until the replacement asset is eventually disposed of. This allows a business to restructure or reinvest without triggering immediate CGT.

The Government intends extending the eligibility of the 50 per cent active asset reduction to more businesses by increasing the turnover threshold from $2 million to $10 million.
 

Superannuation Guarantee Obligations

If your business employs eligible workers, you are required to pay superannuation guarantee contributions on their behalf. This is not optional and not negotiable - failure to pay by the deadline triggers the Superannuation Guarantee Charge, which is non-deductible and carries an administration fee on top of the missed contribution.
 

Current Rate and Upcoming Changes

The super guarantee rate for the 2025–26 financial year is 12% of each eligible employee's ordinary time earnings. This is the current legislated rate and applies from 1 July 2025 onwards. Employers should ensure payroll systems are set to the correct rate for the 2025–26 year.
 

Payment Deadlines and the SGC

Super guarantee contributions for each quarter must be received by the employee's fund by the following dates: Q1 (Jul to Sep) 28 October, Q2 (Oct to Dec) 28 January, Q3 (Jan to Mar) 28 April, Q4 (Apr to Jun) 28 July. The payment must reach the fund by these dates, not merely be initiated.

Contributions received after the deadline attract the Superannuation Guarantee Charge, which consists of the unpaid super, an interest component of 10% per year, and an administration fee. The SGC is not tax deductible, which makes late payment significantly more expensive than on-time payment.

 
Payday Super from 1 July 2026

From 1 July 2026, employers will be required to pay super on the same day as wages. This fundamentally changes the compliance timeline from quarterly to per-pay-run. Employers should begin reviewing payroll systems and clearing house arrangements well before this date. H&R Block's Business Services Team can advise on the transition.

 
Payroll and Employee Obligations

Single Touch Payroll

All employers must report payroll information to the ATO through Single Touch Payroll every time they process a pay run. This includes salary and wages, PAYG withholding, and superannuation information.

STP Phase 2, which expanded reporting requirements to include income type disaggregation and additional employee information, has been mandatory since 1 January 2022.
 

PAYG Withholding from Employees

Every business that pays wages or salaries must deduct PAYG withholding from those payments and remit it to the ATO on the employee's behalf. The withholding amount is determined by the employee's Tax File Number declaration and the withholding tax tables. Businesses that fail to withhold the correct amount are liable for the shortfall.

Payroll Tax

Payroll tax is a state and territory tax on the wages paid by employers. It is not a federal tax and is administered separately by each state revenue office. The threshold above which payroll tax applies varies by state but is generally between $600,000 and $1.2 million in total annual wages. Once the threshold is exceeded, payroll tax applies to all wages above it. Rates vary between 4.75% and 6.85% depending on the state.
 

State/Territory	Payroll Tax Rate*	Annual Threshold*
New South Wales (NSW)	5.45%	$1.2 million
Victoria (VIC)	4.85%	$1.0 million
Queensland (QLD)	4.75% (up to $6.5m payroll)	$1.3 million
Western Australia (WA)	5.5%	$1.0 million
South Australia (SA)	Up to 4.95%	$1.5 million–$1.7 million (sliding scale)
Tasmania (TAS)	4.0% to 6.1%	$1.25 million
Australian Capital Territory (ACT)	6.85%	$2.0 million
Northern Territory (NT)	5.5%	$2.5 million

 
Many small businesses do not reach the payroll tax threshold. Those with multiple related entities need to check whether wages are grouped across entities for payroll tax purposes, as the grouping provisions can mean threshold calculations are more complex than they appear.
 

Deemed Dividends and Private Company Rules

Private company shareholders need to understand the deemed dividend rules under Division 7A of the Income Tax Assessment Act. Under these rules, loans, payments, and debt forgiveness made by a private company to a shareholder or their associate are treated as unfranked dividends in the hands of the recipient, unless a formal loan agreement with minimum interest rates and maximum repayment terms is in place.

The intention of the rules is to prevent private company profits from being extracted as tax-free loans rather than taxable dividends. A loan that meets the Division 7A requirements must be repaid over a maximum of seven years (or 25 years for loans secured by a registered mortgage over real property) at a minimum interest rate set by the ATO each year.

Breaching Division 7A is a common and costly mistake for private company owners. H&R Block Tax Consultants can review your company's loan arrangements and ensure they are structured correctly.
 

Record Keeping for Small Businesses

Australian tax law requires businesses to keep records that explain all transactions and that would allow a knowledgeable third party to verify their tax affairs. Records must be kept for five years from the date of lodgement of the relevant return, or from the date of any transaction, whichever is later.

For assets subject to depreciation, records must be kept for five years after the asset is sold or disposed of. For assets with long holding periods, this can mean decades of records.

The ATO accepts digital records and does not require paper originals, provided the electronic copy is a true and accurate reproduction of the original. A photograph of a receipt taken with a mobile phone is generally acceptable.
 

Common Tax Mistakes Small Business Owners Make

• Mixing personal and business expenses. The surest way to make a tax return complicated and inaccurate is to run business expenses through personal accounts and vice versa. A dedicated business bank account and credit card eliminates most of this problem.
• Missing the super guarantee deadline and triggering the SGC. The SGC is more expensive than the super itself - it includes a non-deductible interest charge and an administration fee. Payment must reach the fund, not merely be initiated, by the due date.
• Treating loans from the company as tax-free income. Division 7A applies regardless of whether a formal loan document exists. Any extraction of funds from a private company needs to be reviewed for Division 7A implications before it occurs.
• Claiming the full cost of mixed-use assets without applying a business-use percentage. A vehicle, phone, or home office used for both business and private purposes requires apportionment. The ATO's data-matching program identifies claims that look inconsistent with the taxpayer's circumstances.
• Missing the amendment window. If deductions were missed in a prior year's return, an amendment can recover the tax. But for small business taxpayers, the window closes two years after the Notice of Assessment was issued, for  2023–24 and earlier income years and 4 years for the 2024–25 and later income years.
• Not registering for GST when turnover crosses $75,000. Once the threshold is reached, registration is compulsory and GST must be charged on sales. Late registration can result in the business owing GST on past sales it did not collect.