Company Tax Rate
The flat rate of tax applied to company profits — 25% for base rate entities (turnover under $50 million) and 30% for others.
Australian companies pay income tax at a flat rate on their taxable income, rather than the progressive rates that apply to individuals. For 2025-26, the rate is 25% for "base rate entities" (companies with aggregated turnover less than $50 million and no more than 80% passive income) and 30% for all other companies. This distinction is important for franking credits — dividends paid from profits taxed at 25% carry a maximum franking rate of 25%.
Companies lodge a separate tax return (the company tax return) and pay tax independently of their shareholders. When the company distributes profits as dividends, shareholders include the dividend and attached franking credits in their assessable income, and receive a tax offset for the franking credits. This imputation system prevents double taxation of company profits.
The company tax rate can be advantageous for retaining profits in the business (taxed at 25% or 30% instead of potentially 45% for high-earning individuals). However, extracting profits through wages or dividends will ultimately be taxed at the individual's marginal rate. The main benefit of the company structure is liability protection and the ability to defer personal tax on retained profits, rather than a permanent tax saving.
How it works
Unlike individuals, who pay progressively higher rates as income rises, companies pay tax at one flat rate on their entire taxable income — 25% for a "base rate entity" (a company with aggregated turnover under $50 million and no more than 80% of its income being passive, such as interest and rent) and 30% for every other company. Which rate a company falls into isn't just a compliance detail — it also caps the franking rate that can be attached to dividends paid out of profits taxed at that rate, so a base rate entity can only frank dividends up to a maximum of 25%, not the higher 30% rate.
A company lodges its own tax return, entirely separate from its shareholders' personal returns, and pays tax on its profits independently of what the owners do with the money afterwards. When profits are eventually paid out as dividends, the imputation system passes the company-level tax already paid through to shareholders as franking credits, which shareholders include in their own assessable income alongside the dividend itself and then claim as a tax offset — this is the mechanism that stops the same profit being taxed twice, once at the company level and again in the shareholder's hands.
The flat company rate is often misunderstood as a straightforward tax saving compared with individual rates, but it's more accurately a deferral: profits retained inside the company are taxed at 25% or 30% while they stay there, which is genuinely lower than the top individual marginal rate for a high-earning owner, but extracting those profits later as wages or dividends brings them back into the individual's tax orbit at their own marginal rate, with a franking credit offset reducing the double-up. The real, permanent benefit of the company structure tends to be liability protection and the flexibility to time when profits are extracted, rather than a tax saving that survives indefinitely.
Example: base rate entity vs a sole trader at top marginal rates
A small trading company with $2 million turnover and no passive income qualifies as a base rate entity, so its $200,000 profit for the year is taxed at 25% — $50,000 of company tax, leaving $150,000 available to retain or distribute.
Had the same $200,000 been earned directly by the business owner as a sole trader instead, at the top individual marginal rate it would have attracted a noticeably larger tax bill — showing why retaining profit inside a company can defer a much bigger tax bill, even though eventually distributing it brings individual rates back into play.
Related Terms
Franking Credits (Imputation Credits)
Tax credits attached to dividends representing company tax already paid on the profits, preventing double taxation.
Sole Trader
An individual who runs a business in their own name, reporting business income and expenses in their personal tax return.
Australian Business Number (ABN)
A unique 11-digit number identifying a business entity to government and the community.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.