Income tax is a direct tax levied by the government on the taxable income earned by individuals, companies, trusts, and other entities during a financial year. In Australia, income tax is administered by the Australian Taxation Office (ATO) and is the federal government’s largest single source of revenue.
Income Tax Rates for Individuals in Australia
For individuals, taxable income is calculated by taking total assessable income (wages, investment income, business income, and other earnings) and subtracting allowable deductions. The resulting figure is taxed at progressive rates that increase as income rises.
Company Income Tax Rates
For companies, income tax applies at a flat rate. The standard company tax rate in Australia is 30%. Small businesses with a turnover below $50 million that derive at least 80% of their income from business activities qualify for the lower rate of 25%. For a retail or hospitality business, the sales and cost-of-sales figures recorded through the POS system across the financial year form much of the raw data used to calculate that taxable income.
PAYG Withholding and PAYG Instalments
Pay As You Go (PAYG) withholding is the mechanism through which employers deduct income tax from employee wages each pay cycle and remit it directly to the ATO. PAYG Instalment is a separate system for businesses and investors who earn income not subject to withholding, requiring quarterly payments credited against the final tax liability.
Tax Planning vs Tax Avoidance
Tax planning is a legitimate activity: structuring business and personal finances to minimise tax within the bounds of the law. Tax avoidance (using artificial arrangements to avoid tax obligations) is different and can attract ATO penalties.
This article is general information only and isn’t tax, legal, or financial advice. For guidance specific to your business, speak with a registered tax agent, accountant, or the ATO.