Life Admin Hub  ›  Tax  ›  Small business tax rate Australia

Small business tax rate Australia

Grasping to understand how the tax system works for small business can be quite challenging! However, understanding the importance and need to work within this system is essential.

In this blog, we will discuss the small business income tax rate, tax deductions, goods and services tax, and record keeping. If you own a small business and want to learn more about tax, this article is for you.

What is the small business income tax rate?

Small businesses are required to pay tax in Australia like any other entity. Although, the tax rate differs. Small businesses in Australia are defined as businesses that generate an annual turnover of less than $10 million.

The small business tax rate in Australia for a company is currently 25% as of 2023. That is 5% lower than the corporate tax rate of 30% for large companies.

If you’re in a partnership or working as a sole trader, your tax rate will vary depending on your total earnings from your small business and any other income.

What is a small business?

A small business is a business that have revenues of under $10 million. As long as you don’t exceed this amount, you sit within the definition of small business in Australia.

Tax deductions for small businesses

Tax deductions can be utilised by small businesses to reduce their tax payable. By claiming as many tax deductions as possible, a small business can optimise its financial performance whilst reducing the amount of tax payable at the end of the year.

For a small business to claim an expense as a tax deduction, it generally must meet the following criteria:

  1. The expense was related to business activity
  2. If the expense was a mix of personal and business use, you can only claim the business-related portion of the expense.
  3. Must be able to prove the expense with records

Some examples of expenses you can claim as a deduction for small businesses include:

  • Operational expenses: Wages, marketing, depreciation, etc.
  • Travel for work: Flights, accommodation, meals (Fringe benefits tax (FBT) may apply to some expenses)

When do small businesses pay Goods and Services Tax (GST)?

Goods and Services Tax (GST) is a 10% tax that is applied to the sale of most goods and services in Australia. Not every small business is required to pay GST. You are only required to pay GST on eligible goods and services if your business produces an annual turnover of $75,000 or higher.

If your business is required to pay GST, you are required to lodge a Business Activity Statement (BAS). The ATO will automatically send you a BAS if you register for GST and an ABN. Also, GST credits can be claimed on eligible expenses to offset your business’s GST payable.

How can small businesses keep records?

Keeping records is important for small businesses to ensure tax compliance and to provide insight into a business’s financial health. Here are a few ways your small business can keep track of its records:

  • Use accounting software such as XERO or MYOB
  • Organise and track receipts, invoices, and financial statements systematically throughout the year
  • Work with an online tax agent like One Click Life so you can focus on running your business

In summary, the small business tax rate in Australia is 25%. Claiming as many tax deductions as you can is beneficial for your small business as it reduces your tax payables and can optimise your business’s financial performance. If your company turns over $75,000 or higher, you are required to pay 10% GST on eligible goods and services. Keep records throughout the year to remain compliant with tax regulations.

One Click Life – Small Business Tax

One Click Life can help with your small business tax return. Dealing with an online tax agent like One Click Life is the simplest way to complete your tax return.

One Click Life is an experience run by a team of friendly accountants that is easy to use and provides online tax returns with the click of a button. Spend more time doing the things you really enjoy in life by letting us deal with your life admin. You can manage, organise, and track your Taxes, Private Health Insurance, and Mortgages in one place.