There is no single small business tax rate. What you pay depends on your structure. A sole trader pays personal income tax rates on the profit. A company pays a flat 25% or 30%. A partnership or trust passes the profit to the people behind it, who pay their own rates. Same profit, very different bills depending on how the business is set up.
Sole traders and partnerships pay personal rates
Run the business in your own name and the profit is added to your other income, then taxed at individual rates. For 2026-27 that is nothing on the first $18,200, 15% up to $45,000, 30% up to $135,000, 37% up to $190,000, and 45% above that, plus a 2% Medicare levy. So a sole trader is never taxed at one flat rate on the whole profit. The first $18,200 is free, the next slice is taxed at 15%, and only the part over $45,000 reaches 30%. A partnership works the same way, split across the partners by their share.
On $60,000 of profit a sole trader pays roughly $8,500 in income tax plus about $1,200 Medicare, a little under $9,800, an effective rate near 16%. Push the profit to $150,000 and the effective rate climbs toward 26%, because more of it sits in the higher brackets. The rate you hear quoted is the top slice, not the whole.
Companies pay a flat rate, then you pay again
A company is different. It pays a flat rate on its profit: 25% if it is a base rate entity, broadly turnover under $50 million with mostly active income, and 30% otherwise. That looks lower than the top personal rate, and it can be, but the profit is taxed twice. Once in the company, then again in your hands when you take it out as a dividend or a wage. Franking credits stop the double tax by crediting you for what the company already paid. The company rate is really a deferral and a cash-flow tool, not a flat discount.
Trusts pass it through
A trust generally pays no tax itself. It distributes the profit to its beneficiaries and they pay at their own rates. Anything left undistributed is taxed to the trustee at the top rate of 47%, which is why trust income is almost always distributed before year end.
Income tax is not the only tax
The rate on profit is one line. A trading business also handles GST at 10% once it is registered, which it collects from customers rather than paying itself, PAYG instalments that pre-pay the year’s income tax, super guarantee at 12% of wages if it has staff, and payroll tax in each state once the wage bill crosses that state’s threshold. None of these is the income tax rate, but they all land on the same bank account.
So what is the number
One honest answer: a profitable sole trader pays somewhere between 16% and 30% of profit as it grows, a base rate company pays 25% up front and the rest when the profit comes out, and a trust pays whatever its beneficiaries pay. The structure sets the shape of the bill. Choosing a structure for tax alone is a mistake, but knowing how each one is taxed is how you stop being surprised at lodgment. If you are weighing the options, start with sole trader versus company, then let Homepedia’s Tax Assistant work the actual return for whichever one you run.
Technical reference
Individual rates (resident, 2026-27). Nil to $18,200; 15% on $18,201 to $45,000; 30% on $45,001 to $135,000; 37% on $135,001 to $190,000; 45% above $190,000. Plus a 2% Medicare levy (low-income thresholds apply). Sole traders and partners are taxed on business profit at these rates. The second marginal rate fell from 16% to 15% on 1 July 2026.
Company. Base rate entity 25% (aggregated turnover under $50 million and base rate entity passive income 80% or less); otherwise 30%. Income Tax Rates Act 1986.
Partnership. Not itself a taxpayer; the net income is assessed to the partners (Division 5 ITAA 1936).
Trust. Net income is assessed to presently entitled beneficiaries (s 97 ITAA 1936); income with no beneficiary presently entitled is taxed to the trustee, generally at 47% (s 99A).
Other taxes on a trading business. GST 10% on taxable supplies once registered (registration threshold $75,000); super guarantee 12% of ordinary time earnings, permanent since 1 July 2025; PAYG instalments toward the year’s income tax; payroll tax on wages above each state or territory threshold, with rates and thresholds set by each jurisdiction. A Medicare levy surcharge can apply to higher earners without private hospital cover.
Currency. Current as at July 2026.
