What Types of Taxes Do Small Businesses Need to Pay in Australia?

What Types of Taxes Do Small Businesses Need to Pay in Australia?

Running a small business in Australia involves a wide range of exciting opportunities—but also a number of tax obligations. Understanding the different kinds of taxes and when they apply is critical for compliance, cash-flow planning and avoiding penalties. In this article we’ll walk through the key tax types that small businesses need to know about in Australia, who they apply to, and some practical tips to stay on top of your tax obligations.

 

1. Business income tax (or company tax / individual tax)

One of the first and most important taxes is the tax on business profits, often known as income tax. How it applies depends significantly on your business structure.

• If you run your business as a sole trader, your business profit is treated as your personal income and taxed at individual marginal rates. business.gov.au+1

• If your business is a company, then the company pays tax on its taxable income. For companies that are “base rate entities” (generally those with aggregated turnover less than AUD 50 million and not deriving more than 80% passive income) the rate is lower (around 25%).

• If your business is a partnership, trust or other structure, the rules may vary.

For example, as of the current rules the full company tax rate is 30% for companies that don’t qualify for the lower rate, while base rate entity companies pay 25%. The Executive Centre+1

Because income tax is the largest single tax burden for many small businesses, it is vital to monitor profit, use tax-deductible expenses properly and review your business structure periodically.

Tips:

• Keep accurate records of income and deductible expenses.

• Review whether you qualify for the lower company tax rate (if you’re a company).

• Plan ahead: estimate your tax liability and set aside funds throughout the year so you’re not caught short.

 

2. Goods and Services Tax (GST)

Another core tax type for small businesses is the Goods and Services Tax (GST). This is a broad-based consumption tax applied to most goods and services sold in Australia.

• If your business has a turnover (gross income) of AUD 75,000 or more per year, you must register for GST. For non-profit organisations the threshold is higher (AUD 150,000). Wikipedia+1

• Once registered, you must charge GST (10%) on taxable supplies, lodge a Business Activity Statement (BAS) to report and pay the GST, and you can claim input tax credits for the GST paid on your business purchases. Wikipedia+1

• If your turnover is below the threshold, you may choose to register voluntarily (which can have benefits for claiming credits) but you’re not legally required to. Wikipedia

Tips:

• Make sure you understand which supplies are GST-free or input-taxed (some supplies are treated differently).

• Review your turnover periodically — if you cross the threshold, register for GST promptly.

• Keep good records of GST collected and GST paid so you can accurately complete your BAS.

 

3. PAYG Withholding & PAYG Instalments

If your business has employees, or if you have to pay tax in instalments, then PAYG (Pay As You Go) obligations come into play.

• PAYG Withholding: If you employ staff, you generally must withhold tax from your employees’ wages and remit those amounts to the Australian Taxation Office (ATO). Your business needs to register for this obligation. business.gov.au+1

• PAYG Instalments: Businesses (and individuals) may be required to pay instalments of tax during the year based on their expected end-of-year tax liability. business.gov.au

Tips:

• If you hire staff, ensure your payroll system is compliant and you register for PAYG withholding.

• Monitor your projected tax liability: instalments can help avoid a huge tax bill at year end.

• Lodge your BAS on time and pay required amounts to avoid interest or penalties.

 

4. Capital Gains Tax (CGT)

When your business sells an asset and generates a capital gain (for example, selling off property, equipment, or business goodwill), you may face CGT.

• The capital gain is essentially included in your assessable income and taxed accordingly. business.gov.au+1

• For small business entities there are special concessional CGT rules (e.g., “small business CGT concessions”) which might reduce or defer tax if you qualify.

• Because CGT depends on what you sell and when, it is important to factor this into exit planning or asset replacement decisions.

Tips:

• If you’re planning to sell business assets, get tax advice early on CGT and eligibility for small business concessions.

• Keep records of asset acquisition costs, improvements, and sale price — these are vital for CGT calculation.

 

5. Fringe Benefits Tax (FBT)

If your business provides benefits to employees (or associates of employees) beyond standard salary and wages — for example, company cars, private use of business assets, entertainment — then FBT may apply.

• The business must register for FBT if it provides fringe benefits; FBT is separate from income tax but linked. business.gov.au

• FBT is generally calculated on the taxable value of the fringe benefits and paid by the employer.

• If not managed properly, FBT can become an expensive and unexpected cost.

Tips:

• Review any non-salary benefits offered to staff and evaluate whether FBT registration is required.

• Ensure record-keeping of usage, private vs business, and apportionment of costs to limit FBT liability.

 

6. Payroll Tax (State/Territory-based)

Beyond federal taxes, small businesses may also face state or territory taxes, notably payroll tax.

• Payroll tax is a tax on the wages paid by an employer to employees; thresholds, rates and exemptions vary by state and territory. smallbusiness.wa.gov.au+1

• Many small businesses may not meet the threshold to pay payroll tax, but as the business grows, this can become a significant consideration.

• Because each state/territory sets its own payroll tax rules, you must review the rules of the jurisdiction(s) in which you employ staff.

Tips:

• If you expand into new states/territories or hire more staff, review whether you now exceed the payroll tax threshold.

• Budget for payroll tax as part of your employment cost modelling — don’t assume “just salary” is all you pay.

 

7. Other Taxes & Levies

In addition to the major taxes above, there are several other taxes that may apply depending on your business activities:

• Fuel tax credits (for businesses that use fuel for certain business purposes) business.gov.au

• Luxury car tax (if your business imports or sells luxury cars) Wikipedia

• Wine equalisation tax (if you deal in wine) business.gov.au

• State duties such as stamp duty, land tax, property tax (if you own business property) business.gov.au

These taxes may not apply to all small businesses, but they are important to be aware of so you can identify potential obligations ahead of time.

 

8. Why Business Structure and Size Matter

Choosing and reviewing your business structure (sole trader, partnership, company, trust) is not just a legal/operational decision — it also has tax implications. For example:

• Sole traders pay tax at individual income tax rates, while companies pay company tax. business.gov.au+1

• As noted, companies that are “base rate entities” with turnover under AUD 50 million and meet passive‐income tests can access the lower company tax rate of ~25%. PwC Tax Summaries+1

• Some tax concessions are only available to small business entities (e.g., small business CGT concessions, small business income tax offset) — meaning size (turnover, employee numbers) matters. Australian Taxation Office+1

Thus, as your business grows or changes, it is critical to revisit your structure and tax planning.

 

9. Practical Checklist for Small Business Tax Readiness

To ensure your small business stays tax compliant and optimised, consider this checklist:

• Register for an Australian Business Number (ABN) and Tax File Number (TFN) as required. CommBank+1

• Determine which taxes apply to your business: income tax, GST, PAYG withholding/instalments, FBT, payroll tax, etc. business.gov.au

• If required, register for GST once turnover threshold is exceeded.

• Set up payroll systems if you employ staff: ensure PAYG withholding is handled.

• Maintain accurate books and records: income receipts, expenses, asset purchases, usage logs.

• Plan for tax payments: estimate income tax, GST, PAYG instalments, payroll tax and reserve funds accordingly.

• At year-end, review whether your business qualifies for small business concessions such as small business income tax offset. Australian Taxation Office+1

• Seek professional advice (tax agent/accountant) especially as your business structure, size, or operations change.

 

10. The Bottom Line

For small businesses in Australia, the tax landscape is multi-faceted. From business income tax and GST to PAYG obligations and state/territory payroll tax, there are several layers to be aware of. What you pay, when and how much is influenced by your business structure, size, turnover, whether you employ staff, what assets you hold or sell, and the states/territories you operate in.

Being proactive about tax obligations—registering early, keeping excellent records, understanding thresholds and planning ahead—can make a significant difference. Proper tax planning not only ensures compliance but can also optimise your cash flow and leave you free to focus on growing your business.

By staying informed about the major tax types and reviewing your tax-position regularly, you’ll be better placed to manage your tax affairs, reduce surprises and support the sustainable growth of your business in Australia.