Income tax for business
Federal income tax is levied on the taxable income of a person or a business. It's calculated on assessable income less any allowable deductions.
- Assessable income is generally income your business earns - it does not include GST payable on sales you make, or GST credits.
- Allowable deductions are deductions for certain expenses that you necessarily incur in relation to your business.
As a sole trader, it's likely you'll pay income tax. You must lodge an income tax return for any year in which you run a business, even if you expect to have no tax liability.
If you're a sole trader or a company structure, read our Tax differences comparison table to find out more about your tax obligations.
Pay as you go (PAYG) instalments
When your business and investment income reaches a certain amount, you’ll pay your income tax in instalments throughout the year (usually quarterly). It helps so that you don’t end up with a large tax bill after you lodge your tax return. For more information, visit PAYG instalments.
Medicare is the system that gives Australian residents access to health care. To help fund the scheme, most taxpayers, including business owners and their employees, pay a Medicare levy of 2.0% of their taxable income. Visit the Australian Taxation Office (ATO) website for more information on the Medicare levy and your taxable income.
Tools to work out how much tax to withhold from employees
It's important to calculate the right amount of tax to withhold from your employees' pay. If you pay casual employees or make regular weekly, fortnightly or monthly payments to your employees, there are handy tables available for use. The ATO have tax tables that allow you to enter an earnings amount and the tool will display the correct amount of tax to withhold. Tables are also available to work out the correct amount to withhold for:
- the Medicare Levy
- the Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFFS)
- superannuation payments.
A tax withheld calculator is also available to calculate the correct amount of tax to withhold for your employees or other payees. Take a look at the Tax tables available for employers on the ATO website.
Read more about paying your employees.
Extra pay period in a financial year
A year usually consists of 26 fortnightly pay periods. However some years (such as the 2015/16 financial year) have 27 pay periods. This means that if you or your employees usually expect to receive a tax refund on your tax return you may find that money is owed instead, due to the extra pay period.
For the employees that you withhold tax for (through Pay As You Go (PAYG) withholding), it's a good idea to provide them with the option of withholding additional amounts from their pay to avoid the possible debt.
Check out the ATO website to find out more about withholding for 27 fortnightly or 53 weekly pays in a year.
Tax concessions for small business
If you’re a small business with an annual turnover of less than $10 million, you may be able to access a range of small business tax concessions from the ATO.
To complement existing concessions, a number of new tax measures are also available from 1 July 2016.
Lower company tax rate
From the 2017–18 income year, your business is eligible for the lower 27.5% company tax rate if it’s a base rate entity. A base rate entity has an aggregated turnover less than $25 million ($50 million from 2018–19), and 80% or less of your assessable income is base rate entity passive income (for example interest, dividends or rent).
The lower company tax rate and eligibility requirements have changed in recent years. Check out the ATO website to learn more about the changes to company tax rates.
Need tax help after hours?
As a small business owner, you're often dealing with administrative work such as taxation outside of business hours.
To help you with a range of tax issues at a time that suits you, the Australian Taxation Office (ATO) offers after hours assistance for small business owners.
The ATO can help answer your questions on:
- Goods & Services Tax (GST)
- Australian Business Numbers (ABNs)
- arranging your tax payments
- business activity statements (BAS)
- account enquiries (call back only)
- updating your details (call back only).
Help is available via Small Business Assist from 3pm-9pm Australian Eastern Standard time (AEST), Monday to Friday and 10am-4pm, Saturday except public holidays.
An after hours call-back service for small business is available from 6pm-9pm (AEST) Monday to Thursday.
The webchat service can provide general guidance and tax information in real-time, while call-back service calls can provide a more personalised and secure experience.
Find out more
- See the ATO Income and deductions for business page for information about income tax.
- Read about How income tax works.
- Large businesses can stay informed of the latest tax news by subscribing to the ATO's Large business bulletin.
- Visit the Inspector-General of Taxation’s Making a complaint page to learn how to make a complaint about tax decisions.