Guides & Resources
Company Tax Rates 2025–26: What Australian Businesses Need to Know
Learn the Company Tax Rates 2025–26 in Australia.
Understand 25% vs 30% tax, Base Rate Entities, passive income rules, and ATO compliance explained simply.
Understanding company tax rates in Australia is essential for every business owner who wants to stay compliant and make smarter financial decisions. For the 2025–26 financial year, the Australian corporate tax system continues to operate under a two-tier structure, which means the tax rate your company pays depends on whether it qualifies as a Base Rate Entity (BRE).
For many businesses, this distinction can significantly affect cash flow, profit planning, and even dividend strategies. Misunderstanding it can also lead to incorrect tax forecasting or missed opportunities for tax efficiency.
At Latitude Accountants, we help Australian business owners navigate corporate tax with clarity and confidence. This guide breaks down everything you need to know about company tax rates in 2025–26 in a simple, practical way.
What Are the Company Tax Rates in Australia for 2025–26?
Australia uses a two-tier company tax system, which applies depending on your business structure and income profile.
What are the corporate tax rates for 2025–26?
For the 2025–26 financial year:
- Base Rate Entities (BRE): 25%
- All Other Companies: 30%
This system is designed to support small and medium businesses while maintaining a standard corporate rate for larger or higher-income companies.
What Is a Base Rate Entity (BRE)?
A Base Rate Entity is a company that qualifies for the lower 25% tax rate.
What determines if a company is a BRE?
To be classified as a Base Rate Entity for 2025–26, your company must meet both conditions:
1. Aggregated turnover must be under $50 million
This includes:
- Your company’s total income
- Income from connected entities
- Income from affiliated businesses
2. Passive income must be 80% or less
No more than 80% of assessable income can come from passive sources.
What counts as passive income (BREPI)?
Passive income includes:
- Dividends (including franking credits)
- Interest income
- Rent
- Royalties
- Net capital gains
- Distributions from trusts or partnerships
Q&A: What is a Base Rate Entity in Australia?
A Base Rate Entity is a company that earns less than $50 million in turnover and has limited passive income (under 80%), allowing it to access the lower 25% tax rate.
Q&A: Why does BRE status matter?
BRE status determines whether your company pays:
- 25% tax (lower liability, more retained profit), or
- 30% tax (standard corporate rate)
This can significantly impact your yearly profit planning.
How Does the Two-Tier Tax System Work?
Australia’s corporate tax system separates businesses into two categories:
Why are there two company tax rates?
The system is designed to:
- Support smaller, active trading businesses
- Apply a standard rate to larger or passive-income-heavy companies
What is the difference between 25% and 30% tax rates?
|
Entity Type |
Tax Rate |
|
Base Rate Entities |
25% |
|
Other Companies |
30% |
The classification is reviewed every financial year.
Q&A: Do all companies pay 25% tax?
No. Only companies that qualify as Base Rate Entities can access the 25% rate. Others pay 30%.
How to Know If Your Business Qualifies for 25% Tax
Many businesses assume they automatically qualify, but eligibility is tested annually.
Ask yourself:
- Is my turnover under $50 million?
- Is most of my income from active business operations?
- Do I earn significant passive income (rent, dividends, interest)?
If you answer “yes” to passive income questions, you may not qualify.
Key Considerations for 2025–26 Company Tax Rates
1. Annual eligibility testing
Your BRE status is not permanent. It is reassessed every year.
A change in business activity—such as selling assets or shifting to rental income—can move your company into the 30% tax bracket.
2. Impact on franking credits
Your company’s franking rate is generally based on the previous financial year.
For 2025–26:
- BRE companies typically have a 25% franking cap
- Non-BRE companies remain aligned with the 30% rate
3. Dividend planning
Incorrect classification can affect:
- Dividend payout planning
- Franking credit allocation
- Shareholder tax outcomes
4. Passive income risk
High passive income can push your company out of BRE status even if turnover is low.
Q&A: What is passive income for company tax purposes?
Passive income includes earnings not generated from active business operations, such as rent, interest, dividends, royalties, and capital gains.
Instant Asset Write-Off (2025–26 Update)
Small businesses continue to benefit from the instant asset write-off extension.
What is the instant asset write-off limit?
For eligible businesses:
- Up to $20,000 per asset
- Extended until 30 June 2026
- Available to businesses with a turnover under $10 million
This allows immediate deductions instead of depreciating assets over several years.
Q&A: Can companies still claim the instant asset write-off in 2025–26?
Yes. Eligible small businesses can still claim up to $20,000 per asset until 30 June 2026.
Other Entity Tax Rates in Australia
Not all organisations fall under the standard corporate tax system.
1. Not-for-profit organisations
- 0% up to $416 income
- Gradual increase until 25% threshold applies at $763
2. Life insurance companies
- Generally taxed at 30% on ordinary income
3. Superannuation funds
- Taxed at 15%
These structures follow separate taxation rules under Australian tax law.
Common Mistakes Businesses Make With Company Tax Rates
Many Australian businesses unintentionally mismanage their tax position.
1. Assuming BRE status applies automatically
Not all companies qualify for the 25% rate.
2. Ignoring passive income impact
Rental income or investments can affect eligibility.
3. Poor record-keeping
Incorrect income classification can lead to ATO adjustments.
4. Not reviewing annually
BRE status must be reassessed every financial year.
Q&A: What happens if my company loses BRE status?
If your company exceeds passive income limits or turnover thresholds, your tax rate increases to 30% for that financial year.
Why Understanding Company Tax Rates Matters
Company tax rates affect more than just your annual tax bill. They influence:
- Profit retention
- Investment decisions
- Dividend strategy
- Business growth planning
- Cash flow forecasting
Even a 5% difference in tax rate can significantly impact long-term business performance.
How Latitude Accountants Helps Australian Businesses
At Latitude Accountants, we don’t just calculate tax—we help you understand how it impacts your business strategy.
We assist with:
- Company tax planning (2025–26 compliance)
- BRE eligibility assessment
- Profit structuring strategies
- Dividend and franking credit planning
- ATO compliance and lodgements
Our approach is simple: clear advice, practical outcomes, and no unnecessary jargon.
Frequently Asked Questions About Company Tax Rates in Australia
What is the company tax rate in Australia for 2025–26?
The rates are 25% for Base Rate Entities and 30% for all other companies.
What is a Base Rate Entity?
A company with under $50 million turnover and less than 80% passive income.
Is company tax different in each Australian state?
No. Company tax rates are set federally and apply across all states.
Do small businesses always pay 25% tax?
Not always. They must meet BRE requirements.
What income is considered passive?
Rent, dividends, interest, royalties, and capital gains.
Is BRE status permanent?
No. It is reviewed every financial year.
Can I reduce my company tax rate?
Only by meeting BRE eligibility conditions and managing income structure properly.
Final Thoughts
The 2025–26 company tax rates in Australia remain straightforward on paper—but applying them correctly requires careful attention to detail. Understanding whether your business qualifies as a Base Rate Entity can make a meaningful difference in how much tax you pay and how you structure your profits.
Need Help With Your Company Tax Planning?
If you’re unsure whether your business qualifies for the 25% tax rate—or you want to optimise your company structure for tax efficiency—professional guidance can make a significant difference.
At Latitude Accountants, we help Australian businesses stay compliant while maximising tax efficiency through practical, tailored advice.
📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au
Speak with our team today and make sure your company tax strategy is working in your favour for 2025–26.
Disclaimer
This article is general information only and does not constitute financial or tax advice. You should seek personalised advice from a qualified accountant before making any financial decisions.
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