How Much Tax Do Small Businesses Pay in Australia?

Small businesses in Australia don’t pay a flat “business tax.” If you’re operating under an ABN as a sole trader, your business income is taxed at individual income tax rates. That means the more you earn, the higher your tax rate.

In simple terms — your business profit gets added to your personal income, and you’re taxed on the total. That’s why understanding your profit (not just your income) is critical. Get that wrong, and you either overpay tax or walk straight into a problem.

How Small Business Tax Actually Works

If you’re a sole trader (ABN holder):

• You pay tax on profit, not revenue
• Profit = income minus tax deductions
• Your tax rate follows individual tax brackets

Australian Tax Rates (Individuals)

Your business income sits inside this structure.

GoTax is an online tax return system designed for small business owners, freelancers, and ABN holders who want a fast, simple, and accurate way to complete their tax return.

Example: How Tax Is Calculated

Let’s say:

• Income: $100,000
• Expenses: $30,000
• Profit: $70,000

You are taxed on $70,000, not $100,000.

That’s why tax deductions matter — they directly reduce your tax bill.

The Real Problem: Revenue vs Profit

Most small business owners focus on revenue.

Big mistake.

Tax is calculated on profit.

So if you’re not tracking expenses properly, you’re probably paying more tax than you should.

What Reduces Your Tax

Your tax position improves when you:

• Claim all eligible tax deductions
• Keep accurate records
• Avoid missing smaller expenses

Even small deductions add up across a year.

If you’re unsure what you can claim, review:
https://www.gotax.com.au/abn-tax/abn-tax-deductions-australia

GST — Does It Affect Your Tax?

GST is separate from income tax.

• If you’re registered for GST, you collect it on sales
• You pay it to the ATO (minus credits)

GST does not directly increase your income tax — but it does affect your cash flow.

What About Company Tax?

This is where people get confused.

If you operate as a company:

• Tax rate is typically 25% (for small businesses)

But if you’re a sole trader:

• You pay individual tax rates (as shown above)

Different structure = different tax outcome.

Sole Trader vs Company Tax

Sounds like companies pay less — but it’s not that simple.
Money taken out of a company is taxed again.

Example: Where Tax Goes Wrong

A sole trader earning $120,000:

• Didn’t claim full vehicle expenses
• Missed software and subscriptions
• Underclaimed home office

Result:

• Higher taxable income
• More tax paid than necessary

After fixing:

• Lower taxable income
• Reduced tax bill

No tricks — just correct reporting.

Record Keeping Drives Your Tax Outcome

If your records are poor, your tax result will be too.

Using something like:
https://www.ecashbooks.com.au/

…means:

• Income and expenses are tracked properly
• Reports are ready
• You know your real profit

Not your guess.

If You Don’t Know Your Profit

You don’t know your tax.

Simple.

Most small business owners:

• estimate
• round numbers
• miss deductions

That’s how tax gets overpaid.

How GoTax Calculates This for You

GoTax simplifies the entire process:

• Guides you through income and expenses
• Calculates your taxable profit
• Applies correct tax rates
• Reviews your return before submission

All for $140.

Start your online tax return here:
https://www.gotax.com.au/

FAQ

How much tax does a small business pay in Australia?

It depends on profit. Sole traders pay individual tax rates.

Do small businesses pay tax on revenue?

No — tax is based on profit (income minus expenses).

What is the small business tax rate?

For sole traders, it’s individual rates. For companies, around 25%.

Does GST increase my tax?

No — GST is separate from income tax.

What Now?

If you don’t understand how your tax is calculated, you’re not in control of your outcome.

Track your profit.
Claim your tax deductions.
Get your structure right.

Everything else flows from that.

Signup to GoTax and not only get your Tax return done, you can also ask as many questions as you like and get informed answers. You have access to the equivalent of a Tax Einstein - that is our very own D.e.r.e.k as well as the best credentialed Tax Accountants around.

https://www.gotax.com.au/small-business-tax-return

About This Article

Author: GoTax Editorial Team
Topic: Australian Tax Returns and Small Business Tax
Audience: Small Business Owners, ABN Holders, Contractors
Purpose: Help users understand how small business tax works in Australia