Quick answer
In 2026-27, Australian companies pay one of two flat tax rates: 25% if the company is a base rate entity, or 30% for every other company. A company is a base rate entity if its aggregated turnover is under $50 million and no more than 80% of its assessable income is passive income (dividends, interest, rent, royalties, net capital gains and similar). Fail either test and the rate jumps to 30% — on a $400,000 taxable income, that one failed test costs an extra $20,000. This guide works through both tests, the franking consequences, and the new 2026-27 measures most guides have not caught up with yet.
How company tax works in Australia
A company is a separate legal person for tax purposes. It lodges its own tax return, pays its own tax, and can keep after-tax profits inside the company. That is the fundamental difference from a sole trader, where business profit lands straight on your personal return and is taxed at your marginal rate (up to 45% plus Medicare levy). See our sole trader vs company guide for the full structure comparison.
Company tax is charged on taxable income, not on turnover. Taxable income is assessable income minus allowable deductions — wages, cost of goods sold, rent, marketing, depreciation and the rest. A company with $2 million in sales and $1.6 million in costs has taxable income of $400,000, and it is the $400,000 that gets taxed. Applying 25% or 30% to gross sales is the single most common beginner error.
Company tax also applies to corporate unit trusts and public trading trusts, not just Pty Ltd companies. And companies do not pay the Medicare levy — that is a personal-tax item only.
The two rates: 25% vs 30%
| Company type | 2026-27 tax rate |
|---|---|
| Base rate entity (aggregated turnover under $50m + 80% or less passive income) | 25% |
| All other companies | 30% |
The 25% rate has applied to base rate entities since the 2021-22 income year. Before that it stepped down (27.5%, then 26%), which is why older articles quote different numbers. For 2026-27 the position is settled: 25% or 30%, nothing in between. (Source: ATO, Changes to company tax rates.)
Test 1: aggregated turnover under $50 million
Aggregated turnover is not just your company’s sales. It combines the turnover of your company plus connected entities and affiliates — other businesses you control, or that control you. This is the trap that catches growing groups.
Example: you own two companies, each turning over $30 million. Each one looks comfortably under the $50 million threshold on its own. But aggregated turnover is $60 million, so both companies fail the test and both pay 30%. The ATO aggregates precisely to stop businesses splitting themselves into smaller pieces to grab the lower rate.
Turnover is also measured for the same income year, not a previous one. Last year’s figures do not lock in this year’s rate — eligibility is re-tested every year.
Test 2: no more than 80% passive income
The second test exists to keep the lower rate for genuinely active businesses. A company passes it if 80% or less of its assessable income is base rate entity passive income (BREPI). BREPI includes:
- Corporate distributions (dividends) and the franking credits on them
- Royalties and rent
- Interest income (some exceptions apply)
- Gains on qualifying securities
- A net capital gain
- Amounts from a partnership or trust that are traceable to passive income of the kind above
Note what is not on the list: ordinary trading income, service fees, and sales of stock. A cafe chain earning $8 million from selling coffee and $3 million in rent from properties it owns has passive income of about 27% of its $11 million total — it passes the test and pays 25%. But an investment holding company whose income is almost entirely rent and dividends will blow past 80% and pay 30%, no matter how small its turnover.
The 80% test is measured on assessable income, not profit. A company can be loss-making overall and still fail the passive income test if the income it did derive was mostly passive.
Worked example: the $20,000 cost of failing one test
Take two companies, both with $400,000 of taxable income in 2026-27.
Active Trading Pty Ltd earns $400,000 from its consulting work, with $20,000 of bank interest on the side. Passive income is 5% of assessable income. It passes both tests, so it is a base rate entity: tax = 25% × $400,000 = $100,000. After-tax profit kept in the company: $300,000.
Property Holding Pty Ltd earns the same $400,000, but $340,000 of it is rent and only $60,000 is active income. Passive income is 85% — over the 80% line. It fails the second test and pays 30%: tax = 30% × $400,000 = $120,000. After-tax profit: $280,000.
Same profit, same year, $20,000 difference — purely because of the income mix. That is why the passive income test deserves a line in your year-end planning, not just a shrug at lodgement time.
Franking credits: why the company rate follows you home
When a company pays a dividend out of after-tax profit, it can attach franking credits — a credit for the company tax already paid. You include the cash dividend plus the credit in your assessable income, then subtract the credit from your tax bill. The system exists so the same profit is not taxed twice.
The formula is: franking credit = cash dividend × company tax rate ÷ (1 − company tax rate).
- A $1,000 fully franked dividend from a 30% company carries a $428.57 credit.
- The same $1,000 from a 25% base rate entity carries a $333.33 credit.
So the company rate changes the value of every dividend you receive. A shareholder in a 25% company gets a smaller credit than a shareholder in a 30% company — but the company also paid less tax in the first place. It balances out at the total-tax level; what changes is where the tax is paid.
Worked example: salary vs dividend on a $200,000 profit
Suppose your company makes $200,000 profit before paying you anything. Two ways to get the money out:
Option A — salary. Pay yourself a $120,000 salary. Salary is deductible to the company, so company taxable income falls to $80,000 and company tax at 25% is $20,000. You pay personal tax on the $120,000 salary at your marginal rates, plus Medicare levy. The company keeps $60,000 after tax.
Option B — dividend. Pay no salary. Company tax is 25% × $200,000 = $50,000, leaving $150,000. Pay the whole $150,000 out as a fully franked dividend. The franking credit is $150,000 × 0.25 ÷ 0.75 = $50,000. You declare $200,000 grossed-up dividend income ($150,000 cash + $50,000 credit), pay personal tax on $200,000, then subtract the $50,000 credit. If your personal tax on $200,000 is more than $50,000, you pay the difference; if it is less, the excess credit is refunded.
Neither option is universally better. Salary gives you super guarantee contributions and a cleaner borrowing position with banks; dividends avoid payroll tax and workers compensation on the amount. Most owners end up with a mix, re-modelled each year with their accountant. What matters is seeing the total tax across both layers, not celebrating a low company tax bill while ignoring the personal one.
The franking-rate flip trap
Here is the trap almost no general guide mentions. A company’s rate for imputation purposes — the rate it is allowed to frank dividends at — is worked out by assuming this year’s turnover and passive income will be the same as last year’s. If your BRE status flips between years, the rate you frank at can be wrong.
Say your company was a base rate entity last year and franked dividends at 25%. This year a big one-off capital gain pushes passive income over 80%, so the company is really a 30% company. If it keeps franking at 25%, it has under-franked; worse, if the flip runs the other way and it franks at 30% while its true rate is 25%, it has over-franked and can face franking deficit tax — tax on the shortfall in its franking account. Check your BRE status before declaring dividends, not after.
New in 2026-27: loss carry-back
From income years starting on or after 1 July 2026, eligible corporate entities can carry back a tax loss and offset it against tax paid in either or both of the previous two years, claiming a refund of tax already paid. Previously, losses could generally only be carried forward against future profits.
Example: your company paid $60,000 tax in 2024-25 and $50,000 in 2025-26. In 2026-27 it makes a $200,000 loss. At 25%, that loss is worth up to $50,000 as a carry-back offset — but the refund is capped by the tax actually paid in those earlier years and by the company’s franking account surplus. If the company already passed its earlier tax out to shareholders as franking credits, there may be little left to claw back. The offset is claimed in the loss year’s return, and the company must have met its lodgement obligations. If your business is heading for a loss year, talk to your accountant early — the carry-back choice interacts with franking, and it cannot be un-done cheaply.
The permanent $20,000 instant asset write-off
From 1 July 2026, the $20,000 instant asset write-off is permanent for small businesses with aggregated turnover under $10 million using the simplified depreciation rules. Each eligible asset costing less than $20,000 can be deducted in full in the year it is first used or installed ready for use. Assets costing $20,000 or more go into the small business pool: 15% deduction in year one, 30% each year after, and the whole pool balance can be written off once it falls under $20,000.
For a base rate entity, a $19,000 asset write-off saves $4,750 in tax (25% × $19,000) — and the same asset in a 30% company saves $5,700. The write-off changes when you deduct, not whether: buying equipment you do not need just to chase a deduction still costs you most of the purchase price. See our small business GST guide for how asset purchases interact with BAS reporting.
Division 7A: do not treat the company account as your wallet
Money taken from a private company without a proper dividend declaration or a complying loan agreement can be treated as an unfranked deemed dividend under Division 7A — taxed in your hands with no franking credit to soften it. The classic triggers are “loans” to shareholders that never get repaid, company-paid personal expenses, and rent-free use of company property. If you need money from the company, document it properly: a franked dividend, a Division 7A-compliant loan with a written agreement, minimum yearly repayments and the benchmark interest rate — or a salary through payroll. The paperwork is annoying; the deemed dividend is worse.
Company vs sole trader: when does the company start winning?
A sole trader pays personal marginal rates (0% to 45% plus Medicare levy) on every dollar of profit. A base rate entity pays a flat 25% at the company layer, with personal tax only on what is actually paid out. So the company structure starts winning when you can afford to leave profits in the company — retained profits are taxed at 25% instead of your top marginal rate, and they compound inside the company for future investment.
But the company has compliance costs: ASIC fees, a separate tax return, financial statements, and (usually) accountant fees that a sole trader avoids. As a rough guide, accountants often suggest the company structure starts to pay for itself once profits are consistently above $100,000–$150,000 a year and you do not need every dollar for living expenses. Below that, the sole trader’s simplicity usually wins. Run your own numbers — or read our structure comparison — before incorporating for tax reasons alone.
Common mistakes
- Taxing turnover instead of profit. The rate applies to taxable income after deductions, never to gross sales.
- Assuming last year’s 25% rate carries over. BRE status is re-tested every year; one big passive-income year flips you to 30%.
- Ignoring connected entities. Aggregated turnover combines related businesses — the $50 million test is a group test, not a per-company test.
- Franking at the wrong rate. Check BRE status before declaring dividends; over-franking can trigger franking deficit tax.
- Forgetting the second layer of tax. A 25% company rate is not a 25% total tax rate once dividends are paid out — model salary, dividends and franking together.
- Division 7A loans. Undocumented drawings from the company can be taxed as unfranked deemed dividends.
- Missing PAYG instalments. Companies generally pay quarterly PAYG instalments through the year; the annual return settles the difference. Underpaying instalments leaves a lump sum due at lodgement.
Tips to get the rate right
- Track passive income quarterly. Do not discover in June that a capital gain or a burst of interest income pushed you over 80%.
- Model the dividend before declaring it. Confirm the franking rate, the franking account balance, and the personal-tax effect in one calculation.
- Keep franking account records clean. The account tracks credits in and credits out; errors surface years later as deficit tax.
- Time asset purchases deliberately. The permanent $20,000 write-off rewards buying when the asset is first used in the income year — not when it is ordered.
- Plan loss years. If a loss is coming, the new carry-back rules may turn it into a refund — but only if franking and lodgement are in order.
- Use the calculators. Run your numbers through our income tax calculator to compare personal vs company outcomes on the same profit.
FAQ
Is the company tax rate 25% for all small businesses?
No. The 25% rate applies only to companies that are base rate entities — aggregated turnover under $50 million and 80% or less passive income. A small company that fails the passive income test pays 30%.
Does a company pay tax on turnover or profit?
On taxable income: assessable income minus allowable deductions. Turnover only matters for the $50 million aggregated-turnover eligibility test.
Can a company pay 25% one year and 30% the next?
Yes. Base rate entity status is re-tested every year. A change in turnover, a large capital gain, or a surge in interest income can flip the rate — and the franking rate with it.
What happens if I frank dividends at the wrong rate?
Over-franking can leave the franking account in deficit and trigger franking deficit tax. Under-franking wastes credits shareholders could have used. Check BRE status before declaring dividends.
Do companies pay Medicare levy?
No. The Medicare levy applies to individuals, not companies. But individuals pay it on salary and on grossed-up dividend income they receive from the company.
Can a company carry back losses in 2026-27?
Yes — from income years starting on or after 1 July 2026, eligible corporate entities can carry back losses against tax paid in the previous two years, capped by the tax actually paid and the franking account surplus.
Bottom line
Company tax in 2026-27 is a two-rate system with a two-part test. Get the base rate entity tests right, frank at the correct rate, keep Division 7A paperwork clean, and use the new loss carry-back and the permanent $20,000 write-off where they genuinely fit. The 25% rate is valuable — but only when you plan for both layers of tax, not just the company one. If your situation involves connected entities, a big capital gain, or a change of BRE status, get advice before you lodge: the difference between 25% and 30% is $5,000 on every $100,000 of taxable income, and the franking consequences last long after the return is filed.
