Company Tax Rate in Australia (2026): 25% Base Rate Entities vs the 30% Full Rate

Australia's headline company tax rate is 30%, but most private companies don't pay it. A company that qualifies as a base rate entity pays 25% instead. The difference turns on two tests — turnover and passive income — and a separate, backward-looking rule decides how much franking credit you can attach to dividends. This guide is for owners of Australian companies, people deciding whether to incorporate, and their bookkeepers. It covers the two rates for 2026, the tests as they're written in the legislation, the franking consequences, worked examples in Australian dollars and the mistakes we see most.

Quick answer

For 2026, an Australian company pays 25% if it is a base rate entity and 30% otherwise. A base rate entity has aggregated turnover under A$50 million for the income year and no more than 80% of its assessable income from passive sources such as rent, interest, portfolio dividends and net capital gains.

• Rates set by section 23 of the Income Tax Rates Act 1986

• Turnover includes connected entities and affiliates, tested at the end of the current year

• Franking rate uses last year's turnover and income — it can differ from the tax rate

• First-year companies frank at 25%

• A passive investment company pays 30% even if it's tiny

Australia's two company tax rates

Company tax is a flat tax on a company's taxable income — assessable income less allowable deductions — for each income year, which for most companies runs from 1 July to 30 June. There is no tax-free threshold and no progressive scale. The rate is set by section 23 of the Income Tax Rates Act 1986, which says the rate on a company's taxable income is 25% if the company is a base rate entity for the year and 30% otherwise. We checked the compilation in force from 1 July 2026, and those are the rates for the 2026–27 income year.

Company tax at a glance (2026)

25%

Base rate entity rate

Applies since 2021–22

30%

Full company tax rate

All other companies

A$50 million

Aggregated turnover limit

Must be less than this

80%

Passive income ceiling

Share of assessable income

The same two rates apply to public trading trusts, which are taxed like companies (section 25 of the same Act). Special rates apply to life insurance companies, retirement savings account providers, pooled development funds and some non-profit companies and credit unions, but those are outside the scope of this guide.

The 25% rate is the end point of a phased cut that started in 2015. From the 2017–18 income year the lower rate was linked to the base rate entity concept, with a 30% rate for everyone else. In 2017–18 the lower rate was 27.5% for companies with aggregated turnover under A$25 million; from 2018–19 the threshold became A$50 million; and from the 2021–22 income year the rate for base rate entities reached 25%. The base rate entity test replaced an earlier "small business entity" test that only required a company to be carrying on a business; the passive income test was added to stop investment companies getting the lower rate.

Test 1: aggregated turnover under A$50 million

The first test is that the company's aggregated turnover for the income year, worked out at the end of that year, must be less than A$50 million. Three details trip people up.

It's aggregated, not just yours. Aggregated turnover is defined in the Income Tax Assessment Act 1997. It's the company's annual turnover plus the annual turnover of any entity connected with it and any affiliate, generally ignoring dealings between those entities. Broadly, an entity is connected with yours if one controls the other or both are controlled by the same entity — control usually meaning 40% or more of the shares, voting power or income and capital distributions. A family group with a trading company, a property trust and a second operating company has to add them together. A company that turns over A$8 million can fail the test if its owner also controls a business turning over A$45 million.

Turnover means ordinary income from business, not profit. Annual turnover is the total ordinary income the entity derives in the ordinary course of carrying on a business, excluding GST. Sales, fees and commissions count. Many passive amounts — such as net capital gains, which are statutory rather than ordinary income — don't. A large capital gain usually won't push a company over the turnover limit, but it may well push it over the passive income limit (see below).

It's the current year, worked out at year-end. Unlike many small business concessions, which let you rely on last year's turnover or a reasonable estimate, the rate test looks at the actual aggregated turnover for the year in question, worked out at the end of that year. The ATO's guidance says prior-year turnover is irrelevant to whether a company is a base rate entity for a particular year. That's why you won't know your company's tax rate for certain until year-end — and why the franking rule below exists.

Test 2: no more than 80% passive income

The second test is that no more than 80% of the company's assessable income for the year is base rate entity passive income (BREPI). Note the comparison: passive income as a share of assessable income — not of taxable income, turnover or profit. Section 23AB of the Income Tax Rates Act lists what counts:

Two points matter for typical family groups. First, the trust rule works by tracing: when a family trust distributes to a corporate beneficiary (the "bucket company"), the distribution is passive income only to the extent it's referable to passive income in the trust. A distribution of trading profits from a trading trust isn't passive. A distribution of rent from a property trust is. Second, non-portfolio dividends — dividends from a company in which the recipient holds at least 10% of the voting power — aren't passive income, so a holding company that receives dividends from its operating subsidiary isn't automatically pushed onto the 30% rate.

The test is all-or-nothing. If passive income is 80.1% of assessable income, the whole of the company's taxable income — including any trading income — is taxed at 30%.

The ATO's own examples show how wide the gap between the two outcomes can be. A company with A$4,000 of interest out of A$104,000 of assessable income has passive income of about 3.8% and pays 25%. A company whose only income is rent received through a trust distribution, but which makes up only 28.6% of its assessable income, still qualifies. By contrast, a listed investment company earning nothing but interest and dividends doesn't, and nor does a company with a A$850,000 net capital gain against A$150,000 of trading income — 85% passive — even though its turnover is small.

Worked examples in A$

These examples apply the 2026 rates and tests to typical small-business structures.

Working out your company's rate

1. 1

   Add up aggregated turnover

   Your company's ordinary business income for the year, plus that of connected entities and affiliates. Is it less than A$50 million?

2. 2

   Total your assessable income

   Everything that's assessable — business income, rent, interest, dividends with franking credits gross-up, net capital gains, trust distributions.

3. 3

   Pick out the passive items

   Use the s 23AB list. Trace trust distributions back to their source. Leave out non-portfolio dividends.

4. 4

   Divide and compare

   Passive ÷ assessable income. If both tests are met, the rate is 25%; if either fails, 30%.

5. 5

   Then check your franking rate separately

   Re-run the tests on last year's figures to find the rate for franking this year's dividends.

1. A trading company. A Brisbane electrical contractor has turnover of A$3.2 million, interest income of A$4,000 and taxable income of A$400,000. Passive income is a tiny share of assessable income and turnover is far below A$50 million, so it's a base rate entity. Tax: 25% × A$400,000 = A$100,000. At 30% it would have been A$120,000.

2. A property investment company. A company owns two commercial units. In 2026 it earns rent of A$300,000, bank interest of A$50,000 and A$60,000 of consulting fees. Assessable income is A$410,000; passive income is A$350,000, or 85.4%. It fails the passive income test, so its taxable income is taxed at 30% even though its turnover is tiny. If the consulting fees had been A$90,000, passive income would have been 79.5% of A$440,000 and the whole taxable income would have been taxed at 25%.

3. A bucket company. A family trust that runs a café distributes A$150,000 of trading profit to a corporate beneficiary that has no other income. The distribution traces back to active income, so it isn't passive; the company is a base rate entity and pays 25% on A$150,000 = A$37,500. If the trust's income had come from rent and term deposits, the same distribution would be 100% passive and taxed at 30%: A$45,000.

4. A group near the threshold. An operating company turns over A$32 million and its owner's separate wholesale company, which she controls, turns over A$21 million. Aggregated turnover is A$53 million — over the limit — so both companies pay 30%, even though neither is above A$50 million on its own.

Franking: the rate you frank at can differ from the rate you pay

When a company pays a dividend, it can attach franking credits for the tax it has paid, so that shareholders aren't taxed twice. The maximum franking credit depends on the company's corporate tax rate for imputation purposes, and that rate is worked out differently from the tax rate.

Under the definition in section 995-1 of the Income Tax Assessment Act 1997, you work out your corporate tax rate for the current year assuming that this year's aggregated turnover, passive income and assessable income are the same as last year's. If the company didn't exist in the previous year, the imputation rate is 25%. The point is practical: you can declare a dividend in, say, March 2026 and know how much to frank without waiting for the year-end figures.

Tax rate vs franking rate

	Company tax rate	Rate for franking (imputation)
Which year's figures	Current year, at year-end	Previous year's turnover, passive and assessable income
Base rate entity	25%	25% if last year's figures pass both tests
Not a base rate entity	30%	30% if last year's figures fail either test
New company (no prior year)	Depends on first-year figures	25%
Maximum franking credit per A$1 of dividend	—	A$0.3333 at 25%; A$0.4286 at 30%

Which year's figures

Company tax rate

Current year, at year-end

Rate for franking (imputation)

Previous year's turnover, passive and assessable income

Base rate entity

Company tax rate

25%

Rate for franking (imputation)

25% if last year's figures pass both tests

Not a base rate entity

Company tax rate

30%

Rate for franking (imputation)

30% if last year's figures fail either test

New company (no prior year)

Company tax rate

Depends on first-year figures

Rate for franking (imputation)

25%

Maximum franking credit per A$1 of dividend

Company tax rate

—

Rate for franking (imputation)

A$0.3333 at 25%; A$0.4286 at 30%

The maximum franking credit is the dividend × rate ÷ (1 − rate). At 25%, a fully franked A$75,000 dividend carries A$25,000 of franking credits, and the shareholder includes A$100,000 in assessable income with a A$25,000 tax offset. At 30%, a fully franked A$70,000 dividend carries A$30,000.

Because the two rates use different years, a company whose circumstances change can end up mismatched:

• Growing past the threshold. Last year's aggregated turnover was A$46 million; this year's is A$55 million. The company pays tax at 30% this year but can only frank this year's dividends at 25%. Some of its franking credits are stranded in the franking account until later dividends.
• Shrinking below the threshold, or shifting from passive to active income. Last year the company failed a test; this year it passes. It pays tax at 25% but may frank dividends at 30%. If it franks at the higher rate using credits it doesn't have, its franking account can go into deficit at the end of the income year, triggering franking deficit tax.

For family companies that pay regular dividends, the rule of thumb is: check the franking rate every year before the first dividend, and keep an eye on the franking account balance when the tax rate and franking rate differ.

Company vs sole trader or trust: what the rates mean for you

The company tax rate is attractive next to personal rates. In 2026–27 a resident individual pays nothing on the first A$18,200, then 15%, 30%, 37% and 45% on higher bands, plus the 2% Medicare levy. On A$300,000 of business profit, a sole trader pays about A$100,870 in income tax plus A$6,000 Medicare levy — roughly A$106,870. A base rate entity company earning the same A$300,000 pays A$75,000.

That gap is real only for profit that stays in the company. When the company pays the profit out as a franked dividend, the shareholder is taxed at their own marginal rate and gets a credit for the company tax, so the total tax ends up close to what they'd pay personally. In the table, the owner receives a A$225,000 dividend with A$75,000 of franking credits, includes A$300,000 in assessable income, works out A$106,870 of tax and levy, and pays the A$31,870 balance after the offset — the same total as the sole trader. Spreading dividends across years, or to family shareholders on lower rates, changes that result, which is why companies and trusts are often used together. The benefit of a company is mainly the ability to retain profits at 25% to fund growth, and the flexibility to time dividends. It comes with costs: ASIC registration and annual review fees, a separate tax return, director duties, and Division 7A rules that treat loans and payments from the company to shareholders as unfranked dividends unless they're put on proper loan terms. Personal services income rules can also deny the company structure where the income is really the owner's personal earnings.

If you're weighing up the switch, our guides to registering a company and operating as a sole trader set out the set-up steps and costs, and the small business CGT concessions guide explains what changes when you sell.

Common mistakes

• Forgetting connected entities. The A$50 million test is on aggregated turnover. Check the whole group, including entities controlled by your family trust and your spouse.
• Using profit, not assessable income, for the 80% test. Rental income counts gross. A property company with high deductions can have low taxable income but still fail the test.
• Treating every trust distribution as passive — or every one as active. Trace each distribution to the trust's underlying income.
• Missing a one-off capital gain. Selling an investment property inside a trading company can push passive income over 80% for that year and move all taxable income to 30%.
• Franking at the tax rate instead of the imputation rate. They use different years. Get it wrong and you either strand credits or create franking deficit tax.
• Assuming the rate is locked in. Your PAYG instalment rate is based on prior figures, but the final rate is decided by this year's actual results. Our PAYG withholding guide covers the employee side of the company's tax obligations.

Official links

• Income Tax Rates Act 1986 — s 23, 23AA, 23AB (compilation from 1 July 2026)The law that sets the rates and tests
• ATO — Company tax ratesCurrent rates by income year
• ATO — Changes to company tax ratesBase rate entity guidance and history
• ATO — Allocating franking creditsFranking and the benchmark rule

Next steps

Run the two tests on your last completed year and your current-year forecast before you set dividend plans, and record the franking rate you'll use. If you're still deciding on a structure, start with our company registration guide, then use the break-even calculator to see how much profit the business needs before a company is worth the extra cost.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the company tax rate in Australia for 2026?

There are two rates. A company that is a base rate entity pays 25% on its taxable income; every other company pays 30%. A base rate entity has aggregated turnover under A$50 million for the income year, and no more than 80% of its assessable income is base rate entity passive income such as rent, interest and dividends.

What is a base rate entity?

It's a company (or other corporate tax entity) that meets two tests in section 23AA of the Income Tax Rates Act 1986 for the year: aggregated turnover, worked out at the end of the year, is less than A$50 million, and no more than 80% of its assessable income is base rate entity passive income. Base rate entities pay 25% instead of 30%.

What counts as base rate entity passive income?

The law lists portfolio dividends and other corporate distributions plus their franking credits, non-share dividends, interest, royalties, rent, gains on qualifying securities, net capital gains, and partnership or trust amounts traced back to those items. Dividends from companies in which you hold at least 10% (non-portfolio dividends) aren't passive income. Banks, lenders and similar financial entities can treat their interest as active income.

What rate do I use to frank dividends?

Your corporate tax rate for imputation purposes, which uses last year's figures: you assume this year's aggregated turnover, passive income and assessable income are the same as the previous year's. If last year you would have been a base rate entity, you frank at 25% (maximum franking credit of one-third of the dividend); otherwise at 30%. A company in its first year uses 25%.

Is a company cheaper than a sole trader in Australia?

On retained profits, often yes: a base rate entity pays 25%, while an individual's marginal rate reaches 45% plus the 2% Medicare levy. But when profits are paid out as franked dividends, shareholders pay tax at their own rate with a credit for company tax, so the overall saving depends on how much you keep in the company. Registration, ASIC fees and compliance costs also count.

Do small companies pay a different tax rate than large ones?

Size matters only through the A$50 million aggregated turnover test, which includes the turnover of connected entities and affiliates. A small company can still pay 30% if more than 80% of its income is passive, such as a company that only holds rental property or shares.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Income Tax Rates Act 1986 — Compilation No. 66 (1 July 2026), sections 23, 23AA and 23AB — Federal Register of Legislation · accessed 9 October 2026
2. 2.Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018 — Federal Register of Legislation · accessed 9 October 2026
3. 3.Company tax rates — Australian Taxation Office · accessed 9 October 2026
4. 4.Tax rates 2025–26 — Australian Taxation Office · accessed 9 October 2026
5. 5.Changes to company tax rates — Australian Taxation Office · accessed 9 October 2026
6. 6.Allocating franking credits — Australian Taxation Office · accessed 9 October 2026
7. 7.Demystifying base rate entities — Wolters Kluwer (CCH) · accessed 9 October 2026
8. 8.Eligibility for the lower company tax rate clarified — Sladen Legal · accessed 9 October 2026