Small Business Tax in Australia: What Every Business Owner Needs to Know in 2026–2027
Running a small business in Australia comes with plenty of responsibilities, but understanding your tax obligations is one of the most important.
Whether you're a sole trader, running a company or starting your first business, knowing how much tax you need to pay, what expenses you can claim and when you need to register for GST can make a significant difference to your bottom line.
The good news? With the right structure, accurate bookkeeping and proper tax planning, you can avoid unnecessary tax costs and keep more money working for your business.
In this guide, we explain the essentials of small business tax in Australia for the 2026–2027 financial year, including tax rates, deductions, GST, BAS, the permanent $20,000 instant asset write-off and common mistakes to avoid.
1. How Much Tax Does a Small Business Pay in Australia?
The amount of tax your business pays depends largely on its business structure.
Sole Trader vs Company Tax Rates
Business structure | How tax works |
Sole trader | Profits taxed at individual income tax rates, up to 45%, plus Medicare levy where applicable |
Company | Generally 25% for eligible base rate entities, otherwise 30% |
Partnership | Partners generally pay individual tax on their share of profits |
Trust | Tax generally depends on how income is distributed and who receives it |
A common misconception is that registering a company automatically means you pay less tax.
While a company may pay tax at 25%, money subsequently paid to you as salary or dividends can create additional personal tax consequences.
The key takeaway: The cheapest business structure is not necessarily the one with the lowest headline tax rate.
2. What Expenses Can a Small Business Claim?
One of the biggest advantages of operating a business is being able to claim deductions for eligible expenses incurred in earning assessable income.
Common small business tax deductions include:
Accounting and bookkeeping fees
Business software subscriptions, including Xero and other platforms
Advertising, website development and marketing costs
Business-related phone and internet expenses
Office rent, electricity and utilities
Eligible vehicle and travel expenses
Business insurance
Employee wages and eligible superannuation contributions
Equipment, computers and office furniture, subject to depreciation rules
Eligible home office expenses
However, not every purchase is immediately deductible, and personal expenses cannot simply be claimed because they were paid through a business account.
For example, if you use your mobile phone 70% for business and 30% privately, you would generally only claim the business-related 70%.
Example: How Tax Deductions Reduce Your Tax
Suppose your business earns $150,000 in revenue and incurs $50,000 in deductible business expenses.
Description | Amount |
Annual business revenue | $150,000 |
Deductible expenses | ($50,000) |
Taxable business profit | $100,000 |
Company tax at 25% | $25,000 |
Profit remaining after company tax | $75,000 |
This example assumes an eligible company, no other tax adjustments and no subsequent distributions to shareholders.
Without those $50,000 in deductible expenses, the company would potentially pay an additional $12,500 in tax.
Of course, spending $50,000 just to save $12,500 in tax is not a sensible business strategy.
A tax deduction reduces the cost of an expense, but it does not make the expense free.
3. When Does a Small Business Need to Register for GST?
In Australia, most businesses must register for Goods and Services Tax (GST) once their current or projected GST turnover reaches $75,000, subject to the applicable turnover tests.
GST is generally charged at 10% on taxable sales.
Example: How GST Works
Your business invoices a client $5,500, including GST.
Description | Amount |
Invoice excluding GST | $5,000 |
GST collected | $500 |
Total invoice | $5,500 |
The $500 GST collected is not business profit. It is generally payable to the Australian Taxation Office (ATO), after accounting for eligible GST credits on business purchases.
Businesses registered for GST generally report their GST obligations through a Business Activity Statement (BAS).
Important: The $75,000 threshold relates to GST turnover, not business profit. You may need to register for GST even if your business is making very little profit.
4. What Is a BAS and When Do You Need to Lodge One?
A Business Activity Statement is used to report certain tax obligations to the ATO, including:
GST collected on taxable sales
GST credits on eligible business purchases
PAYG withholding from employee wages
PAYG income tax instalments, where applicable
Many small businesses lodge BAS quarterly, although monthly or other reporting arrangements can apply.
Standard Quarterly BAS Due Dates
Quarter | Standard due date |
July to September | 28 October |
October to December | 28 February |
January to March | 28 April |
April to June | 28 July |
Different due dates or extensions may apply when lodging through a registered tax or BAS agent.
Failing to lodge a BAS on time can result in penalties, interest and unnecessary ATO debt.
5. Should You Operate as a Sole Trader or Company?
As your business grows, you may start wondering whether it is time to move from a sole trader structure to a company.
Consider this example.
Sarah runs a consulting business generating $180,000 in annual revenue with $40,000 in deductible expenses.
Her business profit is $140,000.
Sole Trader vs Company Tax Comparison
Description | Sole trader | Company |
Annual revenue | $180,000 | $180,000 |
Business expenses | ($40,000) | ($40,000) |
Taxable business profit | $140,000 | $140,000 |
Estimated tax | $36,138 | $35,000 |
Profit after initial tax | $103,862 | $105,000 |
Illustrative calculations for 2026–2027. The sole trader calculation assumes Australian tax residency, no other income, deductions or offsets, and a 2% Medicare levy. The company calculation assumes eligibility for the 25% company tax rate and excludes any additional tax consequences when profits are paid to shareholders.
At first glance, the company appears to pay less tax.
However, if Sarah wants to withdraw the profits personally, the tax treatment of salary or dividends must also be considered.
Companies also have additional accounting, ASIC and compliance obligations.
For some business owners, a company provides valuable asset protection and opportunities to retain profits for future growth. For others, remaining a sole trader may be simpler and more cost-effective.
The right structure depends on your income, business risks and long-term plans.
6. The Permanent $20,000 Instant Asset Write-Off for Small Businesses
The $20,000 instant asset write-off is now a permanent tax concession for eligible Australian small businesses, effective from 1 July 2026.
Businesses with aggregated annual turnover of less than $10 million that use the simplified depreciation rules can immediately deduct the business-use portion of eligible assets costing less than $20,000 each.
Unlike previous years, when the threshold required extensions, the $20,000 limit is now permanently legislated, providing greater certainty for small businesses planning equipment and technology purchases.
What Can You Claim Under the Instant Asset Write-Off?
Common examples of eligible business assets include:
Computers and laptops
Office furniture and equipment
Business machinery and tools
Printers and other technology
Other qualifying depreciating business assets
Both new and second-hand assets may qualify, provided the relevant eligibility requirements are satisfied.
The $20,000 threshold applies per asset, not to your total annual purchases.
Example: How the $20,000 Instant Asset Write-Off Works
Sarah operates a small consulting business and purchases the following equipment:
Business asset | Cost |
New business laptop | $4,000 |
Office furniture | $3,000 |
Business equipment | $8,000 |
Total purchases | $15,000 |
Assuming Sarah meets the eligibility requirements and all assets are used entirely for business purposes, she may be able to claim the full $15,000 as an immediate tax deduction.
If Sarah operates through a company taxed at 25%, this could reduce her company tax by $3,750, assuming sufficient taxable income.
Important Things to Remember
Assets must cost less than $20,000 each.
Assets must be first used or installed ready for use within the relevant financial year.
Only the business-use portion of an asset is deductible.
GST-exclusive costs generally apply when the business is entitled to claim GST credits.
Assets costing $20,000 or more are generally subject to the applicable depreciation rules.
The business must meet the eligibility requirements for simplified depreciation.
Remember: A tax deduction does not mean the ATO reimburses you for the purchase. It reduces your taxable income, which may reduce the tax you pay.
Before purchasing equipment solely to obtain a tax deduction, speak with your accountant to ensure the purchase makes financial sense and meets the relevant eligibility requirements.
7. Five Common Small Business Tax Mistakes
Many small business owners pay more tax than necessary, or create avoidable compliance problems, because of poor record keeping and planning.
1. Mixing Personal and Business Expenses
Using the same bank account for personal and business transactions makes bookkeeping more complicated and increases the risk of incorrect deductions.
2. Not Putting Money Aside for Tax
Business profits are not necessarily cash available to spend. Failing to budget for income tax and GST can lead to unexpected tax bills.
3. Registering for GST Too Late
Businesses can become liable for GST even if they have not charged it to customers.
4. Forgetting About PAYG Instalments
The ATO may require you to make regular income tax instalments throughout the year. These payments can create cash flow pressure if they have not been budgeted for.
5. Waiting Until Tax Time to Speak With an Accountant
Effective tax planning should happen throughout the year, not after 30 June.
By the time the financial year has ended, many opportunities to manage your tax position may no longer be available.
8. How Much Should a Small Business Set Aside for Tax?
The amount you should set aside depends on your structure, profit, other income and tax obligations.
For eligible companies, the company tax rate may be 25% of taxable profits.
For sole traders, tax is calculated using individual income tax rates, which means the percentage payable generally increases as taxable income rises.
GST and employee PAYG withholding should also be accounted for separately.
A Simple Tax Planning Strategy
A practical approach is to maintain a dedicated tax savings account and regularly transfer funds into it based on your estimated liabilities.
For example, if your business collects $11,000 from a taxable sale, including GST, $1,000 represents GST collected.
That GST should not automatically be treated as available business cash, although eligible GST credits may reduce the amount ultimately payable to the ATO.
Regularly reviewing your profit, GST position and PAYG instalments can help you plan ahead and avoid unexpected tax bills.
9. When Should You Hire a Small Business Accountant?
An accountant does more than prepare your annual tax return.
A good small business accountant can help you:
Understand how your business is performing
Identify legitimate tax deductions
Choose the most appropriate business structure
Manage GST and BAS obligations
Improve bookkeeping and financial reporting
Plan for tax liabilities and cash flow
Make informed decisions about business growth
At Dolman Bateman, we assist Australian small businesses with taxation, bookkeeping, GST and BAS compliance, business structuring and ongoing financial advice.
Whether you are starting a business or managing an established operation, getting the right advice early can help you avoid expensive mistakes.
Frequently Asked Questions About Small Business Tax
Do I need to pay tax if my small business makes less than $75,000?
Yes, potentially. The $75,000 threshold generally relates to GST registration, not income tax.
Sole traders must report their business profits in their individual tax returns, even if they are not registered for GST.
Can I claim my home office as a business expense?
You may be eligible to claim the business-related portion of certain home office expenses, depending on your circumstances and the ATO's substantiation requirements.
Do I need an ABN to run a small business?
Most businesses operating in Australia will need an Australian Business Number (ABN).
However, an ABN does not automatically mean you must register for GST.
Is it better to pay myself a salary or dividends from my company?
This depends on your personal income, company profits, franking credits and other circumstances.
Salary and dividends have different tax and compliance implications.
Can I do my own bookkeeping and BAS?
Yes. Many business owners maintain their own records and lodge their BAS.
However, professional assistance can help reduce errors and improve financial reporting, particularly as the business grows.
Is the $20,000 instant asset write-off permanent?
Yes. From 1 July 2026, the $20,000 instant asset write-off has been made permanent for eligible small businesses with aggregated annual turnover below $10 million that use the simplified depreciation rules.
The threshold applies to each qualifying asset, allowing eligible businesses to plan equipment purchases with greater certainty.
Need Help With Your Small Business Tax?
Managing tax should not take your attention away from running and growing your business.
Dolman Bateman is a Chartered Accounting firm based in Roseville, Sydney, providing taxation, business advisory, bookkeeping and compliance services to businesses across Australia.
Whether you need assistance with your annual tax return, BAS lodgements, business structure or ongoing tax planning, our team can help you understand your obligations and make informed financial decisions.
Contact Dolman Bateman today to discuss your small business accounting and taxation needs.
Disclaimer: This article provides general information only and does not constitute personalised tax advice. Tax rules, eligibility thresholds and concessions should be confirmed for the relevant financial year and your individual circumstances.
