Australia's current company tax rate is 25% for eligible base rate entities and 30% for all other companies. The practical question is whether your company satisfies the turnover and passive-income tests, and how that result affects retained profits, dividends and franking credits.
A Sydney founder reviewing her first full-year accounts might expect one flat 30% figure. Instead, her accountant explains that the company's aggregated turnover stayed below $50 million, its income was mainly from active trading, and the lower rate may apply. That distinction affects how much cash remains available for staff, equipment, premises or future distributions.
Who this article is for: Australian small and medium businesses, professional practices, company owners, family groups, foreign entrants and advisers considering the relationship between company tax, retained earnings and dividends.
Currency note: This article reflects Australian rules, thresholds and regulator guidance current as at 08/2026.
Why Your Company Tax Rate in Australia Matters Now
The company tax rate isn't just a number on the tax return. It influences the cash a company can retain after tax, the timing of dividends, the franking credits attached to those dividends and the funds available for reinvestment.
The Australian Taxation Office (ATO) confirms that, from the 2021–22 income year onwards, eligible base rate entities use a 25% company tax rate, while other companies remain on 30%. The ATO's published tables for 2024–25 and 2025–26 retain that structure. The central eligibility threshold is aggregated turnover below $50 million. The ATO's company tax rate guidance should be checked before finalising a return.
Practical rule: Treat the rate as a structure and cashflow issue, not merely a compliance entry.
A professional services company may want to retain profits for a new consulting team, while a family-owned business may prefer to distribute profits to shareholders. A foreign-owned subsidiary may also need to consider how Australian tax interacts with withholding obligations, group financing and broader cross-border governance.
Good planning starts with the entity's actual income mix and relationships. Resources on tax strategies for businesses can provide broader context, while Everglow's small business tax guidance is relevant where company tax sits alongside salary, trust and business decisions.
The rate may also become a policy issue rather than a settled assumption. Recent coverage of a Productivity Commission proposal discusses a possible 20% corporate tax rate for companies with turnover below AUD 1 billion, alongside a proposed 5% net cashflow tax, while larger companies would remain on 30% under that proposal. These ideas aren't current law, but they show why businesses should understand their exposure before committing to a long-term structure.
How the 25% and 30% Company Tax Rates Work
The starting point is the company's status for the income year. A company generally pays 30% if it is not a base rate entity. This includes a company with aggregated turnover at or above $50 million, as well as a smaller company that fails the passive-income conditions. The ATO's company tax rate changes confirms the 25% rate for qualifying base rate entities and 30% for other companies.
A company can use 25% when it qualifies as a base rate entity for that year. The turnover test looks beyond revenue in the company's own accounts. Aggregated turnover may include connected entities and affiliates, so related businesses and ownership arrangements need to be reviewed together.
Income composition can also change the result. A company generally will not qualify where more than 80% of assessable income is base rate entity passive income. The ATO explains this filter in its guidance on correct base rate entity status.
| Rate | Who It Applies To | Key Threshold | Income Year Introduced |
|---|---|---|---|
| 25% | Eligible base rate entities | Aggregated turnover below $50 million, with the passive-income test satisfied | From 2021–22 under the current rate structure |
| 30% | All other companies | Applies where the base rate entity requirements are not met | Present general company rate |
The table gives the practical distinction, but the relevant income year and current legislation still need to be checked when preparing a return. The rate also affects later franking calculations. A company paying tax at 25% generally has a different franking outcome from one paying 30%, particularly when profits are distributed.
Operating as a sole trader, or through some trust arrangements, does not automatically provide access to either company rate. Individual tax rates and possible small business concessions may apply instead. Choosing a company solely for the headline rate can produce a poor result if the structure does not suit ownership, cash extraction or asset protection needs.
The Base Rate Entity Tests That Decide Which Rate You Pay
The base rate entity test is designed to prevent passive investment companies from obtaining the concessional rate merely because their turnover is modest. The company generally needs aggregated turnover below $50 million, no more than 80% of assessable income from base rate entity passive income, and the relevant passive-income deduction condition must also be considered under the applicable rules.
Passive income can include dividends, interest, rent, royalties, net capital gains and trust distributions. A property-holding company with relatively limited turnover may therefore face a different result from an operating company earning medical, construction or consulting fees. The source and composition of income matter, not just the size of the business.
A company that fails one of the relevant tests may be taxed at 30% for the year. That makes year-end classification important, particularly where a group receives investment income, sells assets, receives trust distributions or moves cash between related entities.
Record keeping should support the calculation. Keep the turnover analysis, group relationship assessment, income classification and working papers that explain why the company qualifies or doesn't qualify. The ATO's base rate entity status guidance is the appropriate starting point, although the same source should not be treated as a substitute for reviewing the company's full facts.
For a fuller explanation of the classification, see Everglow's guide to what a base rate entity is. The practical warning is simple: a holding company, investment company or property company should not assume that the small-business rate applies because its gross receipts look modest.
How the Company Tax Rate Flows Into Franking Credits
The tax rate paid by the company affects the franking credit attached to a fully franked dividend. For a $100 cash dividend, the credit is $33.33 at 25% and $42.86 at 30%, using the respective franking-credit formulas. These figures are set out in the supplied franking-credit reference from LinkAdvisors, although dividend decisions still require consideration of the shareholder's own tax position.
| Item | 25% base rate entity | 30% non-base rate entity |
|---|---|---|
| Cash dividend example | $100 | $100 |
| Franking credit | $33.33 | $42.86 |
| Franking formula | 25/75 of the cash dividend | 30/70 of the cash dividend |
A shareholder with tax losses may value the franking credit differently from a shareholder whose personal tax rate is higher than the company rate. An unfranked distribution doesn't carry a franking credit, so the company's tax rate doesn't create the same credit attachment for that payment.
Dividend timing also matters. The company needs sufficient franking credits in its franking account, and the distribution must be properly documented. Family arrangements involving trusts, loans or private-company payments need separate attention, including Division 7A considerations. Everglow's guide to calculating franking credits can help explain the arithmetic, but it shouldn't be used alone to decide who receives a dividend or when.
A Sydney Professional Practice Worked Example
Dr Anya Sharma is a fictional example used to show how the rules work. She is not an Everglow client.
Dr Anya Sharma operates a medical specialist practice in Sydney. Her service company has $600,000 of taxable profit for the year, and the practice's active medical income is the dominant source of assessable income. The group's aggregated turnover remains below $50 million, so the company may qualify as a base rate entity if the full tests are satisfied.
At 25%, the company tax calculation is $150,000, leaving $450,000 after company tax before considering later payments, working capital requirements and other obligations. Dr Sharma now has a commercial decision, not merely a tax calculation: retain some funds for rooms, staff and equipment, or distribute profits to her as shareholder, potentially through an appropriately documented family structure.
If the company failed the relevant passive-income test and the 30% rate applied, tax on the same taxable profit would be $180,000, leaving $420,000. The difference is $30,000. That difference would also affect the franking profile of a later dividend, although the correct distribution still depends on the shareholder's personal position and the company's available franking balance.
Dr Sharma shouldn't move investment assets into the service company to pursue a rate. Active practice income, passive assets, trust distributions, shareholder loans and future exit plans need to be considered together. Everglow's advanced tax planning for medical professionals discusses the broader planning context for professional practices.
What Could Change and Why It Matters for Planning
Australia's statutory company tax rate has moved down over the long term, from 46% in the early 1980s to 30% in the present system, according to Australian Treasury analysis. Treasury also records that company tax collections and the effective burden on corporate profits don't necessarily move in line with the headline rate, because the tax base and company profits change over time.
The current reform debate focuses on architecture as well as rates. The Productivity Commission proposal described in recent independent coverage would broaden the group potentially receiving a lower rate to companies with turnover below AUD 1 billion, while pairing that with a proposed 5% net cashflow tax and retaining 30% for larger companies. It remains a proposal, not enacted law.
For an SME near the current threshold, possible changes could affect whether profits are retained, distributed or invested. For a foreign entrant, the treatment of capital expenditure, financing, royalties and dividends may matter more than a headline reduction alone.
Planning perspective: Don't restructure around a proposal until the proposal becomes law, but do model how your existing structure would respond if the policy direction changed.
Practical Planning Considerations Before You Act
A company can appear eligible for the lower rate and still produce an unexpected tax result. Begin with the facts that establish eligibility, then model how profits will be retained, distributed or used in the business.
- Review aggregated turnover: Include connected and affiliated entities before treating the company as a base rate entity. The group position matters, not only the turnover shown in the company's own accounts.
- Test passive income: Examine rent, interest, dividends, royalties, capital gains and trust distributions, particularly where income is received through holding structures.
- Model distributions: Compare retaining profits with paying dividends. Include the shareholder's likely tax position, franking credits, personal cash requirements and the company's future funding needs.
- Document trust and intercompany dealings: Keep evidence for distributions, loans, royalties and service arrangements. Clear agreements and records support the treatment adopted in the accounts and tax return.
- Monitor reform exposure: Consider how a cashflow-tax model or changed rate boundary could affect capital expenditure, retained earnings and group financing.
For a broader set of tactics that work alongside the company rate, see our small business tax planning strategies guide.
Foreign-owned groups may need a wider review. Thin capitalisation, royalty withholding and the Australian subsidiary's place within the global group can materially affect the outcome. A not-for-profit company should separately consider its legal status, income sources and unrelated commercial activities, rather than assume that ordinary company-rate analysis answers every issue.
The rate calculation must also fit the entity's commercial purpose. A company may suit retained working capital, equipment purchases or expansion, while a trust, partnership or individual structure may be more suitable for another activity. The choice should reflect tax outcomes, asset protection, financing, administration and how owners expect to extract value.
Everglow Prosperity provides integrated tax, accounting, financial planning, lending, audit and advisory support for businesses and professionals assessing these connected decisions.
The current answer is 25% for an eligible base rate entity and 30% for every other company. The correct approach depends on aggregated turnover, ownership, income mix, dividend needs, financing and long-term plans. The rate should not be considered in isolation.
Frequently asked questions
What is the company tax rate in Australia?
The current company tax rate is 25% for an eligible base rate entity and 30% for all other companies. Eligibility generally depends on aggregated turnover below $50 million and satisfying the passive-income rules. Review the company's income sources and connected entities before using a rate in a tax return.
Does every company under $50 million pay 25%?
No. Turnover below $50 million is necessary but not sufficient. The company must also satisfy the base rate entity conditions, including the passive-income test. A company earning mainly rent, interest, dividends or other passive income may therefore be taxed at 30%, despite remaining below the turnover threshold.
How does company tax affect franking credits?
The company tax rate affects the franking credit attached to a fully franked dividend. Using a $100 dividend, the credit is $33.33 at 25% and $42.86 at 30%. The shareholder's own tax position, the company's franking account, and the timing and documentation of the dividend also affect the final result.
Is the company tax rate likely to change?
The current 25% and 30% structure remains the relevant framework, although reform proposals are being discussed. Recent coverage of a Productivity Commission proposal refers to a possible 20% rate for companies below AUD 1 billion turnover and a proposed 5% net cashflow tax. These proposals are not current law and should not be treated as settled settings.
Should a business retain profits or pay dividends?
There is no single answer. Retaining profits may support working capital, equipment or expansion, while dividends may suit personal cash needs or ownership planning. Assess tax, franking credits, shareholder circumstances, company solvency, documentation and any private-company loan issues before deciding.
If you would like clarity on how these principles may apply to your circumstances, contact Everglow on 1300 913 929 or email contact@everglow.au.
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Tags: company tax rate Australia, base rate entity, Australian business tax, franking credits, SME tax planning, professional practice tax, corporate tax reform, retained earnings
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