Company Tax in Australia: 25% vs 30% Explained for 2025–26
How Australian company tax works: 25% base rate vs 30% standard rate, the base rate entity test, passive income, franking credits, and quarterly PAYG instalments.
Quick Answer
Australian companies pay 25% company tax if they qualify as 'base rate entities' (aggregated turnover under A$50 million AND no more than 80% passive income). All other companies pay 30%. Most owner-managed Pty Ltds qualify for 25%, but the passive income test catches investment-heavy businesses. There is no separate state-level company tax. Tax is paid via quarterly PAYG instalments and the annual company tax return.
The 25%-or-30% question trips up almost every Australian founder. The headline rate of 25% sounds straightforward, but the base rate entity test has two prongs and the second one (passive income) is easy to fail without realising.
This guide explains exactly how the rate is determined, how franking credits change the picture, and how to avoid common mistakes.
The two-prong test
To qualify for the 25% base rate, your company must satisfy both:
- Turnover test: aggregated turnover for the income year under A$50 million
- Passive income test: no more than 80% of assessable income is "base rate entity passive income"
Fail either and you pay 30%.
The turnover test
"Aggregated turnover" includes:
- Your company's turnover
- Connected entities (companies you control or which control you)
- Affiliates (entities acting in concert with you)
For a founder running a single Pty Ltd, this is just the company's turnover. For a group with multiple subsidiaries or controlled trusts, you aggregate.
A$50 million is high enough that 99% of owner-managed companies pass. The bigger trap is the second test.
The passive income test
"Base rate entity passive income" is defined in s23AA of the Income Tax Rates Act 1986 and includes:
- Distributions from companies (other than non-portfolio dividends)
- Franking credits
- Interest income (with limited exceptions for active financial businesses)
- Rent (other than from related-party leasing of an active business)
- Royalties (other than for active publishing/IP businesses)
- Net capital gains
- Trust distributions
If more than 80% of your assessable income falls into these buckets, your company pays 30% even if turnover is well under A$50 million.
Common surprises:
- A holding company that does nothing but receive dividends from a trading subsidiary — 100% passive, pays 30%.
- A property investment company holding rentals — 100% passive, pays 30%.
- A consulting Pty Ltd that sells a major asset and the gain dominates the year's income — fails the test for that year.
Worked example
Acme Pty Ltd, financial year 2025–26:
- Trading revenue: A$800,000
- Bank interest on retained profits: A$50,000
- Franking credit on a small dividend received: A$3,000
- Total assessable income: A$853,000
Passive income: A$50,000 + A$3,000 = A$53,000 / A$853,000 = 6.2%
Result: 25% base rate applies. Tax on net trading profit of A$200,000 = A$50,000.
If the same company had 90% rental income and 10% trading, it would fail the test and pay 30% on every dollar.
Franking credits — Australia's secret weapon
Unlike Ireland or the UK, Australia integrates company and shareholder taxation through franking credits (or "imputation credits"). When a company pays tax and then pays a franked dividend, the shareholder grosses up the dividend, claims the franking credit, and only pays the net difference.
Worked example: Pty Ltd pays A$25,000 tax on A$100,000 profit (25% rate), then distributes the remaining A$75,000 as a fully franked dividend to a single director-shareholder.
| Item | Amount |
|---|---|
| Cash dividend received | A$75,000 |
| Franking credit attached | A$25,000 |
| Grossed-up dividend (assessable) | A$100,000 |
| Personal income tax (37% marginal at this level) | –A$37,000 |
| Less franking credit | +A$25,000 |
| Net personal tax | A$12,000 |
| Cash retained | A$75,000 – A$12,000 = A$63,000 |
Effective combined rate: 37% (the personal marginal rate). The company tax is fully credited.
If the company is a base-rate entity paying 25%, the maximum franking rate on its dividends is also 25% — the franking credit covers the company tax paid, no more, no less.
This is why Australia's effective combined company-and-personal tax burden is often lower than Ireland or the UK: there's no double taxation on distributed profit.
Quarterly PAYG instalments
Most Australian companies pay tax in advance via the Pay As You Go (PAYG) instalment system, integrated into the quarterly BAS:
- Q1 (Jul–Sep): BAS due 28 October
- Q2 (Oct–Dec): BAS due 28 February
- Q3 (Jan–Mar): BAS due 28 April
- Q4 (Apr–Jun): BAS due 28 July
The ATO calculates each instalment based on prior-year tax. You can vary the instalment downwards if you expect lower current-year tax (with the risk of interest if you under-vary by too much).
After year-end, the company tax return reconciles:
- Total company tax payable on actual taxable income
- Less PAYG instalments paid throughout the year
- = Balancing payment (or refund)
Substituted accounting periods
The default Australian Financial Year is 1 July to 30 June. Some companies — particularly those owned by overseas parents on a December year-end — apply for a Substituted Accounting Period (SAP) with the ATO.
If you're a US-owned subsidiary with a parent on calendar year, an SAP makes group reporting easier. If you're a standalone Australian Pty Ltd, stick with 30 June — it aligns with FBT and personal tax cycles.
Lodgement deadlines
| Filer | Self-lodgement | With tax agent |
|---|---|---|
| Small company (turnover < A$2m) | 31 October | 28 February (typical) |
| Medium company | 31 October | 15 January (typical) |
| Large company | 1 December (taxable) | 15 January (typical) |
Tax agents have lodgement programs that defer the deadline, but only if you're on the agent's lodgement list before the original deadline. Don't appoint an agent in October expecting February relief — it doesn't work that way.
Penalties
Failure to Lodge (FTL) penalties for the company tax return:
- 1 penalty unit (A$330 from July 2024) per 28 days late
- Maximum 5 units (A$1,650) for small entities
- Higher unit values for medium and large entities
Plus General Interest Charge on unpaid tax — currently around 11.36% per annum compounded daily.
Common mistakes
- Assuming 25% applies because turnover is small. The passive income test catches investment-heavy small companies.
- Franking dividends at the wrong rate. A 25% company can only frank dividends at 25% maximum. Over-franking is a strict liability offence.
- Forgetting that R&D Tax Incentive credits affect franking. Refundable R&D offsets reduce franking account credits.
- Missing PAYG instalment variations when revenue drops sharply — the ATO keeps charging based on prior year.
- Substituted Accounting Period mistakes — the SAP applies to lodgement dates, FBT, GST and STP differently. Get advice before electing.
How AccountsOS handles Australian company tax
AccountsOS is live in Australia. Finn:
- Tracks aggregated turnover and passive income ratio in real time
- Flags if you're at risk of failing the base rate entity test
- Maintains the franking account ledger automatically
- Computes a running company tax estimate as transactions come in
- Reminds you of every BAS, PAYG instalment and the annual return
- Aware of the Australian Financial Year and FBT year (1 April – 31 March)
Try AccountsOS free or read about AccountsOS in Australia.
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