The rate is decided by what the company is, not by what it earned
Australian company tax has two rates and no bands. A base rate entity pays 25% on the whole of its taxable income and every other company pays 30% on the whole of its taxable income. Nothing is sliced.
Base rate entity means two things, and both have to hold for the income year:
- Aggregated turnover under $50 million. Under, not up to.
- Base rate entity passive income of 80% or less of assessable income.
Notice that neither one mentions profit. That is the single most important thing on this page for anyone who has dealt with company tax in another country, and it is where most of the confusion comes from.
So there is no small-profit relief here at all
A company with $20,000 of taxable income pays exactly the same percentage as one turning over $49 million. The system has no mechanism for noticing that a profit is small, because it is not looking at the profit.
That is unusual. In the United Kingdom the profit alone decides, and a company on the equivalent of $20,000 pays 19%. In Canada the first slice of active business income is charged at 9% federally plus a provincial rate, so an Ontario company pays about 12%. Both of those reward a small profit; Australia does not. The comparison is on our corporation tax page, which covers all four markets and explains why the four headline percentages are not comparable figures.
The boundaries go opposite ways, and they read the same in a summary
Turnover must be less than $50 million, so a company landing exactly on $50 million fails. Passive income may be 80% or less, so a company at exactly 80% passes. One boundary excludes its own number and the other includes it, which is easy to get backwards and impossible to notice once you have.
Crossing $50 million is a cliff, not a step
One extra dollar of aggregated turnover past the threshold moves the whole of taxable income from 25% to 30%. There is no transitional band and nothing is left behind on the lower rate. On $400,000 of taxable income that single dollar costs $20,000.
This is worth knowing because aggregated turnover is a wider figure than most directors carry in their head. It includes connected entities and affiliates, so a group can be comfortably under the threshold company by company and over it in aggregate. That is the usual way a company finds out it has been paying the wrong rate.
The calculator above flags it when you are within five per cent of the line, because that is the range where the aggregation question stops being academic.
Passive income is a longer list than most people count
It is corporate distributions and the franking credits on them, royalties and rent, most interest, gains on qualifying securities, a net capital gain, and any partnership or trust amount traceable to one of those.
The trust limb is the one that catches people. Rent earned by a trust and distributed to your company is passive income in your hands, even though your company never let a property to anybody. The ATO's own worked example is a cafe whose landlord trust distributes rental income to it: the cafe is still a base rate entity because the rent is only 28.6% of its assessable income, but a slightly different set of numbers would have put it on 30%.
A one-off event can do the same thing. Sell a building and the net capital gain lands in assessable income for that year, which can push a trading company over 80% in a single year while nothing about the business has changed.
The test is run twice, on two different years
This is the part that costs real money, and it is stated plainly by the ATO on one page without ever being drawn together.
What you pay is decided by the current income year. In the ATO's words, the aggregated turnover from any prior income year is irrelevant when working out whether a company is a base rate entity for a particular year.
What you may frank at is decided by the previous income year. For the corporate tax rate for imputation purposes, you assume your turnover, assessable income and passive income will be the same as the previous year.
So a company that grew past $50 million pays at 30% and franks at 25%, and one that came back under does the reverse. Neither figure is wrong. Both are the rule.
Getting the franking rate wrong is the expensive half, because it does not stay with you. A distribution statement showing the wrong rate hands every shareholder a franking credit that does not match what the company actually paid, and the credit is what they claim on their own return. Our dividend tax page shows the arithmetic: the credit is the dividend times the company rate over one minus the company rate, which is three sevenths at 30% and one third at 25%. Those are visibly different numbers, so the error is not a rounding matter.
Not-for-profit companies, and the 55% band
A not-for-profit company pays nothing on the first $416 of taxable income. Above that it pays 55% of the excess, until 55% of the excess catches the flat company rate on the whole amount. For a base rate entity that happens at $762.
So there is a 55% marginal rate over a band about $346 wide. That is higher than any company rate in the country, and it exists for the same reason British marginal relief exists: a benefit is being withdrawn as income rises, and withdrawing it costs something on top of the tax itself.
The $762 is worth understanding rather than memorising. It is not a figure someone chose, it is where the two routes meet: 55% of anything over $416 equals 25% of the whole at $762.67, so the shade-in stops there. When the base rate was 26% the published limit was $788, which is the same sum with a different rate in it. If the rate changes again, the limit moves with it and can be worked out rather than looked up.
Why 27.5% is still all over the internet
Because it was correct until fairly recently. The base rate entity rate was 27.5% up to and including 2019-20, 26% for 2020-21, and 25% from 2021-22 onwards.
The threshold moved as well, which is the part most articles miss. It was $25 million for 2017-18 and $50 million from 2018-19. So a piece quoting 27.5% was often also testing against a threshold half the current size, and correcting only the rate gets you a different wrong answer.
The full 30% rate has never moved through any of this, which makes it the safest figure on the page and the reason a company on the full rate can largely ignore the history.
Why this is its own page and not a country switch
Because the question is different, not just the number. A British corporation tax calculator asks how many associated companies you have, because that divides both of its profit limits. A Canadian one asks which province and whether the income is active business income. Neither question exists here, and the two this page asks, turnover and passive income share, do not exist there.
A single page with a country dropdown would have to hide two thirds of its fields whichever country you picked, and it would have to call this "corporation tax", which is not what it is called in Australia. There is a four-market comparison on the corporation tax page for anyone moving between them, because that comparison is genuinely useful. What it is not is a substitute for a page that asks the right questions in the first place.
Common questions
What is the company tax rate in Australia?
Either 25% or 30%, and the whole of taxable income sits on one of them. A base rate entity pays 25%; every other company pays 30%. There are no bands, so a company on the full rate does not get a lower slice underneath.
What is a base rate entity?
A company whose aggregated turnover for the income year is less than $50 million AND whose base rate entity passive income is 80% or less of assessable income. Both limbs have to hold. Note the boundaries go opposite ways: turnover must be LESS THAN $50 million, so landing exactly on it fails, while passive income may be 80% OR LESS, so exactly 80% passes.
Does the size of my profit change my company tax rate?
No. Australia has no small-profit rate at all. That is the thing that surprises people arriving from the UK. A company with $20,000 of taxable income pays the same percentage as one turning over $49 million, because the test is about what the company IS rather than what it earned. A British company on $20,000 of profit would pay 19% and an Ontario one about 12%.
Can I pay tax at one rate and frank dividends at another?
Yes. The rate you PAY is decided by the current income year, and that is the rule rather than a mistake. The rate you may FRANK at is decided by the PREVIOUS income year. The ATO states both on the same page, so a company that grew past $50 million pays at 30% and franks at 25%, and one that came back under does the reverse. This is the expensive one to get wrong, because a wrong franking rate lands on every shareholder.
What counts as base rate entity passive income?
Corporate distributions and the franking credits on them, royalties and rent, interest income with some exceptions, gains on qualifying securities, a net capital gain, and any partnership or trust amount traceable to one of those. The last one catches people: rent earned by a trust and distributed to your company is passive in your hands, even though your company never let a property to anybody.
What happens if I cross the $50 million turnover threshold?
The whole of your taxable income moves from 25% to 30%, not just the part above the threshold. That makes it a cliff rather than a taper: on $400,000 of taxable income, crossing costs $20,000. Aggregated turnover includes connected and affiliated entities, which is where companies discover they were over the line all along.
Do not-for-profit companies pay company tax?
A not-for-profit company pays nothing on the first $416 of taxable income, then 55% of the excess until that catches the flat company rate on the whole amount, which happens at $762 for a base rate entity. So there is a 55% marginal rate over a band a few hundred dollars wide. It is the same machinery as British marginal relief, and the $762 is not an arbitrary figure: it is simply where 55% of the excess over $416 equals 25% of the whole.
Why is the rate sometimes quoted as 27.5%?
Because it was, until the 2020-21 income year. It went 27.5% through 2019-20, then 26% for 2020-21, then 25% from 2021-22 onwards. The turnover threshold moved too, from $25 million in 2017-18 to $50 million after it, so an old article quoting 27.5% was also testing against a different threshold. The full 30% rate has never moved.