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How do I calculate company tax?

June 18, 2023   Fatima RazaPhilip Evangelou

Need help with Company Tax Calculations?

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    Being a sole trader does not necessarily mean you have to operate your business alone. In short, yes – as a sole trader you are permitted to hire employees. As an employer you must comply with the legal obligations that any other employer has.

    Being an employer in Australia consists of various responsibilities and there are certain minimum standards that must be met if you hire employees to work for your business. Some of these working standards include providing employees with work entitlements such as annual leave, superannuation and minimum wage. 

    More specifically, as an employer your sole trader company must meet the following requirements. 

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    Many elements play a part into how much tax your business has to pay such as business income, deductibles, company type etc.  

    Who pays company tax? 

    Companies that are Australian residents other than those that are considered as a corporate collective investment are subject to Australian income tax on their worldwide income. Non resident companies are also subject to Australian income tax but only on their Australian sourced income. 

    The two tax rates

    There are two tax rates and they depend on the annual turnover of the company:


    The full tax rate– All companies with an annual turnover exceeding $10 million pay the full business tax rate of 30%. Company types that fall under this rate include: 

    • Public trading trusts.
    • Regular company. 
    • Trustees of corporate unit trusts.
    • Corporate limited partnerships. 
    • Starte title bodies corporate.


    The lower tax rate– the lower tax rate is 27.5% and is eligible for:

    • Small or medium businesses if their annual turnover is less than $10 million. Keep in mind if you operate your business as a sole trader you won’t have to pay taxes on the first $18,200.
    • Base rate entities companies that have an aggravated turnover of $50 million from 2018-2019 or $25 million from 2017-2018. Furthermore 80% or less of their income is base rate entity passive income such as interest or rent. 

    How to calculate company tax

    Company tax is calculated from your assessable income minus deductions.  

                  Taxable income= (Business income – Deductions)

    Business/Assessable income

    Most business income is an assessable income. However, your accounting method may alter which amounts will be included.

    What to include in your business’s assessable income

    Your business assessable income should include:

    • All gross income (before tax): everyday business activities, foreign income, internet sales, income from sales (both cash and electronic). Just remember that gross income doesn’t include the goods and services tax (GST).
    • All other business income which isn’t a part of your everyday business activities such as: capital gains, cash prizes, changes in the trading stock value, cryptocurrencies etc. 

    What NOT to include in your business’s assessable income

    Not all incomes are assessable incomes, you do not need to list them in your tax return. Examples include: 

    • GST you’ve collected.
    • Borrowed money.
    • Betting and gambling wins.
    • Hobby earnings.
    • Inheritance or gifts.


    You can claim tax deductions for expenses that concern your business as long as they link to earning your assessable income 

    What you can claim as deductions

    For a deduction to be valid they must satisfy three rules:

    1. The expense must be for your business only and not for private use.
    2. You can only claim the business portion of an expense if it is mixed with business and personal use.
    3. You must have proof of these records.

    Examples include:

    • Home-based business.
    • Operating expenses.
    • Motor vehicle expenses.
    • Business travel expenses.

    What you CAN’T claim as deductions

    Expenses that are not deductible include:

    • Traffic fines. 
    • Entertainment expenses. 
    • Private or domestic expenses e.g. clothes and food for your family.
    • Hobby earnings.
    • GST cannot be claimed if you’ve claimed it as credit on you business activity statement.

    How to claim your tax deduction 

    Claiming your tax deduction depends on your business type:

    • Company: Claim in your company tax return. 
    • Sole Trader: Claim in your individual tax return using a tax agent or myTax in the “Business and professional” items schedule.
    • Partnership: Claim in your partnership tax return. 
    • Trust: Claim in your trust tax return.


    Company tax can be calculated through minusing deductions from your assessable income however, it depends on a variety of factors. Including the type of business, what is considered deductible and what is not. It’s important to understand what is needed to calculate your company tax and the variety of factors involved. If you need any assistance or have any enquiries about your company tax return, get in touch with our team via the contact form or by calling 1300 337 997

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    About Fatima Raza

    Fatima RazaFatima is a legal intern at Openlegal and is currently in her third year studying Law and Media and communications at Macquarie University. Her interests are commercial, property and international law.

    About Philip Evangelou

    phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.

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