What You’ll Learn:
- The two company tax rates for 2025: 25% vs 30% and which applies to your business
- Base rate entity eligibility requirements including the $50 million turnover and 80% passive income tests
- How franking credits work with different tax rates and strategic timing considerations
- Critical payment deadlines and PAYG instalment requirements to avoid penalties
- Common mistakes that trigger unexpected 30% tax bills and how to avoid them
- Tax planning strategies to optimise your company’s tax position for 2025
Getting hit with surprise tax bills or confused about what rate your company should pay? You’re not alone. Australia’s company tax system offers two main rates for 2025: 25% for eligible small businesses and 30% for everyone else – but determining which applies to your company involves more than just checking your revenue.
The stakes are high: choosing the wrong rate or missing eligibility requirements can cost thousands in overpaid taxes or penalties. This guide cuts through the complexity to help you understand exactly what your company owes, when it’s due, and how to optimise your tax position for 2025.
Whether you’re running a growing startup wondering about the $50 million threshold or managing an established company navigating recent legislative changes, we’ll walk you through everything you need to know about Australian company tax rates in language that actually makes sense.
Understanding the Two-Tier Company Tax System
Australia operates a two-tier company tax system designed to support smaller businesses while ensuring larger companies contribute their fair share. The system isn’t just about company size, it’s about meeting specific criteria that determine your eligibility for the lower rate.
The 25% base rate entity tax rate applies to companies that qualify as “base rate entities” by meeting both a turnover test and a passive income test. Most small to medium businesses will qualify, but the rules have nuances that catch many business owners off guard.
The 30% standard company tax rate applies to all other companies, including larger businesses, those with high passive income, and companies that don’t meet the base rate entity criteria. This rate has remained stable for several years and continues through 2025.
The key insight many business owners miss: eligibility is determined annually based on your company’s specific circumstances for each income year. You might qualify for 25% one year but not the next, depending on how your business evolves.
Base Rate Entity Eligibility: The $50 Million Question
To qualify for the 25% company tax rate in 2025, your company must meet two strict criteria that work together to identify genuine small-to-medium businesses.
The turnover test requires your company’s aggregated turnover to be less than $50 million for the 2024-25 income year. This sounds straightforward, but “aggregated turnover” includes income from all related entities, not just your individual company. If you operate multiple businesses or have complex corporate structures, you’ll need to combine turnover across all connected entities.
The passive income test – often overlooked but equally important – requires that 80% or less of your company’s assessable income consists of “base rate entity passive income” (BREPI). This rule prevents investment companies and passive income generators from accessing the small business rate intended for active trading businesses.
Base rate entity passive income includes dividends (except those where you hold 10% or more voting power), interest income, rent and royalties, net capital gains, and trust distributions traceable to passive income. The 80% threshold means if more than 80% of your income comes from these passive sources, you’ll pay the 30% rate regardless of your turnover.
Here’s a practical example: Coffee Masters Pty Ltd has $8 million annual turnover from their café chain (qualifying under the turnover test) but also receives $3 million in rental income from investment properties. Their total assessable income is $11 million, with $3 million (27%) being passive income. Since passive income is less than 80%, they qualify for the 25% rate.
Recent Changes Affecting Your 2025 Tax Position
Global Anti-Base Erosion (GloBE) rules have introduced big changes for larger companies, with the Income Inclusion Rule effective from 2024-25 and the Undertaxed Profits Rule starting 2025-26. These rules impose a 15% domestic minimum tax on Australian operations of multinational groups with consolidated revenue exceeding €750 million.
Foreign resident CGT changes effective from July 2025 strengthen the exemption regime and increase withholding tax rates from 12.5% to 15%, with the previous $750,000 threshold removed entirely. Australian companies with foreign shareholders or international operations need to review their structures accordingly.
The instant asset write-off threshold remains at $20,000 for businesses with turnover under $10 million, extended until 30 June 2025 (and promised to continue into 2025-26). This provides continued opportunities for eligible companies to immediately deduct business asset purchases rather than depreciate them over time.
These changes reflect the government’s focus on ensuring larger companies and multinational operations pay appropriate tax while maintaining support for genuine small-to-medium Australian businesses through the base rate entity system.
Franking credits: Making the most of the two-tier system
The franking credit system adds another layer of complexity to company tax rates, but understanding it can significantly benefit your shareholders. Franking rates for 2025 are based on your company’s tax rate: 25% for base rate entities and 30% for companies paying the standard rate.
Here’s the crucial detail most business owners miss: franking rates are determined by your previous year’s tax status, not your current year. If your company was a base rate entity in 2023-24, you’ll frank dividends at 25% during 2024-25, even if your current year circumstances change.
Maximum franking benefits occur when you fully frank dividends and your shareholders can utilise the credits effectively. Australian resident shareholders can claim franking credits as tax offsets, potentially receiving refunds if their marginal tax rate is lower than the company tax rate.
For strategic planning, consider timing dividend payments around your base rate entity status changes. If you expect to lose base rate entity status next year, paying fully franked dividends while still qualifying for 25% franking can provide better outcomes for shareholders.
The 45-day holding period rule requires shareholders to hold shares for at least 45 days around the ex-dividend date to claim franking credits, with a $5,000 annual threshold before these integrity rules apply. Understanding these requirements helps ensure your dividend strategy delivers intended benefits.
Payment obligations and critical deadlines
Company tax returns for 2024-25 must be lodged by 15 January 2026, with extensions available until 15 May 2026 if you use a registered tax agent. Missing these deadlines triggers penalties of $330 per 28-day period, up to $1,650 for smaller entities.
PAYG installments represent your most frequent tax obligation, with quarterly payments due 28 days after each quarter end. September quarter installments are due 28 October, December quarter by 28 February, March quarter by 28 May, and June quarter by 28 August.
Companies with business income over $20 million must pay their monthly PAYG installments by the 21st of each following month. The ATO automatically enters companies into the PAYG instalment system if instalment income reaches $2 million or tax payable exceeds $1,000.
Shortfall interest applies when your PAYG installments fall short of 85% of your actual tax liability. This interest compounds daily until paid, making accurate installment calculations crucial for cash flow management. You can vary your instalments during the year if your circumstances change significantly.
Business Activity Statements (BAS) are due quarterly (28 days after quarter end) or monthly (21 days after month end for businesses with GST turnover over $20 million). These often coincide with PAYG installments, creating significant cash flow events for many businesses.
Tax planning strategies that actually work
Base rate entity optimisation requires careful monitoring of both turnover and passive income throughout the year. If you’re approaching the $50 million threshold, consider timing large sales or spreading income across financial years. For passive income management, restructure investment holdings or delay capital gains realisation to stay under the 80% threshold.
Franking strategy becomes critical when your base rate entity status might change. If you expect to move from 25% to 30% tax rate next year, consider declaring dividends in the current year while franking rates are lower. On the other hand, if you’re moving from 30% to 25%, delay dividend payments until after the transition.
PAYG installment management offers a few strategic options. Choose between paying a fixed instalment amount or using the instalment rate method depending on your cash flow patterns. If business income drops significantly, vary your installments downward to improve cash flow – but ensure you’ll still meet the 85% threshold to avoid interest charges.
Asset purchase timing around the $20,000 instant write-off threshold can provide immediate tax benefits for eligible companies. Purchase and install qualifying assets before 30 June 2025 to maximise the current year’s deductions.
Corporate structure reviews become essential as your business grows. If you’re approaching the $50 million threshold, consider whether splitting operations across multiple entities might maintain base rate entity status, but remember that related entity rules mean this strategy has limits.
Common mistakes and how to avoid them
Misunderstanding aggregated turnover catches out many growing businesses. Don’t just look at your individual company’s revenue – include all related entities, overseas operations, and connected businesses. The ATO’s interpretation of “control” for related entity purposes is broader than many business owners expect.
Ignoring the passive income test leads to unexpected 30% tax bills. Even small amounts of rental income, interest, or capital gains can push you over the 80% threshold if your trading income drops. Monitor this ratio throughout the year, especially during quieter trading periods.
Incorrect franking calculations occur when business owners don’t realise franking rates lag behind current year tax rates by one year. Plan dividend payments with this timing difference in mind, and maintain adequate franking account balances to avoid over-franking penalties.
Inadequate PAYG installments result in interest charges that compound daily. The 85% safe harbor rule isn’t just a guideline – it’s the threshold between cash flow management and expensive interest charges. When in doubt, vary your installments upward rather than risk shortfall interest.
Poor record keeping creates problems during ATO reviews. Document the basis for your base rate entity eligibility claims, maintain franking account records, and keep detailed transaction records for passive income calculations. The ATO’s data matching capabilities mean discrepancies will likely be detected.
Your next steps for 2025 compliance
Before 30 June 2025 (or before submitting your tax return), review your projected turnover and passive income to confirm your expected tax rate for the year. This determines your PAYG instalment requirements and helps optimise timing for major transactions or dividend payments.
Consider professional advice if your company operates near the $50 million threshold, has complex passive income streams, or is part of a multi-entity structure. The potential tax savings from proper base rate entity qualification typically far exceed professional fees.
Set up compliance systems to track aggregated turnover and passive income ratios monthly rather than discovering issues at year-end. Use accounting software that properly categorises income types and maintains franking account records automatically.
Plan major transactions carefully around your base rate entity status, considering both immediate tax implications and future year effects on eligibility and franking rates.
Ready to ensure your company pays the right tax rate and maximises available concessions? Book a consultation with an ITP business tax specialist who can review your specific circumstances and develop a strategy tailored to your business needs.
Need immediate assistance? Call 1800 367 487 to speak with a qualified tax accountant who understands the complexities of Australian company tax rates and can guide you through the compliance requirements for 2025.
Frequently Asked Questions About the Company Tax Rate for 2025
Can my company qualify for the 25% rate if we have investment properties?
Yes, but rental income counts as passive income under the base rate entity test. If rental income plus other passive income sources exceed 80% of your total assessable income, you’ll pay the 30% rate regardless of turnover. Many property investment companies find themselves caught by this rule.
What happens if my turnover crosses $50 million mid-year?
Base rate entity eligibility is determined by your full-year aggregated turnover. If you cross $50 million at any point during the income year, you won’t qualify for the 25% rate for that entire year. Consider timing large sales or contracts to manage this threshold.
How do franking credits work when my tax rate changes between years?
Franking rates are based on your previous year’s tax rate, not your current year. If you were a base rate entity in 2023-24, you’ll frank 2024-25 dividends at 25% even if you no longer qualify for base rate entity status in the current year.
Do I need to pay PAYG installments if this is my first year in business?
New companies typically aren’t required to pay PAYG installments in their first year unless they choose to enter the system voluntarily. However, if you acquire an existing business or expect significant tax liability, voluntary entry can help with cash flow management.
Can I claim the instant asset write-off if my turnover is close to $10 million?
The instant asset write-off threshold is based on your turnover in the previous income year. If your 2023-24 turnover was under $10 million, you can claim the write-off for 2024-25 purchases, even if current year turnover exceeds the threshold.
What’s the penalty for getting my company tax rate wrong?
If you underpay tax due to incorrectly claiming the 25% rate, you’ll face the tax shortfall plus penalty tax and interest charges. Penalties depend on whether the ATO considers the error careless (25% penalty) or deliberate (75% penalty). Accurate record-keeping and professional advice minimise these risks.
Disclaimer: This article provides general information about Australian company tax rates and should not be considered personal tax advice. Tax laws are complex and individual circumstances vary significantly, so you should always consult with a qualified tax professional for advice tailored to your specific situation. ITP Accounting Professionals disclaims any liability for decisions made based solely on this general information.