Company Tax Rate 2026 Australia: What Directors Need to Check
- Jul 14
- 6 min read
Company Tax Rate 2026 Australia is a common search for directors entering the new financial year, but the answer involves more than choosing between 25% and 30%. For the 2026–27 financial year, directors also need to review whether the company qualifies as a base rate entity, whether its income is personal services income, how much profit can be retained and whether wages or dividends are being handled correctly.
Under current ATO guidance, eligible base rate entities continue to use the 25% company tax rate, while companies that do not qualify generally use the standard 30% rate. The rates have not changed simply because the new financial year began on 1 July 2026.
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What Company Tax Rate Applies in 2026–27?
The 25% company tax rate applies to companies that qualify as base rate entities. Other companies are generally taxed at 30%.
A company usually qualifies as a base rate entity when both of these conditions are met:
Its aggregated turnover is less than $50 million.
No more than 80% of its assessable income is base rate entity passive income.
Passive income can include interest, rent, royalties, dividends and certain capital gains. The test must be completed each financial year because a company’s turnover and income mix can change.
Check the ATO’s current company tax rate rules before preparing the 2026–27 company tax position.
Does Turnover Below $50 Million Automatically Mean the 25% Rate Applies?
No. Turnover is only one part of the test.
A company with turnover below $50 million can still be subject to the 30% rate where more than 80% of its assessable income is base rate entity passive income. Aggregated turnover may also include income from connected entities and affiliates, not only the turnover recorded by one company.
The ATO advised in April 2026 that it was seeing company tax returns where base rate entity status had been applied incorrectly. Artificial or contrived arrangements designed to access the lower rate may also attract ATO attention.
Review the ATO’s latest base rate entity guidance before selecting the lower company tax rate.
Can Directors Leave Profits in a Company at 25%?
A company can retain genuine business profits, but the reason for retaining them matters.
Commercial reasons may include funding working capital, purchasing equipment, employing additional staff, repaying business debt or preparing for expansion. Directors should document the amount being retained and how the company expects to use it.
The 25% company tax rate should not be treated as the final tax cost. If profits are later distributed as dividends, the shareholder includes the dividend and any attached franking credit in their personal tax position. The result depends on the shareholder’s circumstances and marginal tax rate.
The position becomes more sensitive when the company’s income is mainly generated by one director’s labour, expertise or professional skills.
Plan your 2026–27 company tax position with Sageon Taxation Planning before deciding how much profit to pay, distribute or retain.
How Do Personal Services Income Rules Affect Company Profits?
Personal services income, commonly called PSI, is income produced mainly from an individual’s personal skills or efforts. The ATO generally treats income as PSI where more than 50% of the payment under a contract is a reward for the individual’s labour, knowledge or expertise.
This frequently affects consultants, information technology specialists, engineers, health professionals and other service based directors trading through companies.
Where the PSI rules apply, a company generally needs to attribute the net PSI to the individual who performed the work. A director cannot simply leave the income in the company to access the 25% rate. Salary or wages already paid to the individual can form part of the attribution calculation.
Understand how the ATO defines personal services income before relying on the company structure.
Does Qualifying as a Personal Services Business Remove the Risk?
Not entirely.
Passing a personal services business test may mean the strict PSI attribution rules do not apply. However, the ATO’s PCG 2025/5 makes it clear that PSB status does not create unrestricted freedom to divert income to associates or retain profits in a lower taxed company without a commercial reason. Part IVA, the general anti avoidance rule, may still apply.
In May 2026, the ATO announced increased scrutiny of higher risk PSI arrangements, particularly those involving significant income diversion or profit retention. The ATO has also indicated that, subject to its conditions, taxpayers who make a genuine attempt to move to a low risk position by 30 June 2027 may access its transitional compliance approach.
For affected directors, 2026–27 is the year to review the arrangement rather than wait for an ATO enquiry.
Read the ATO’s 2026 PSI compliance update to understand the current areas of concern.
What Is Income From a Business Structure?
Income from a business structure is generated by the broader business rather than mainly by one individual’s personal work.
Relevant indicators can include:
Several employees or contractors delivering the services.
Substantial income producing assets.
Established systems, processes and business goodwill.
A wider client base.
Income that does not depend mainly on one person’s expertise.
Whether income comes from a business structure is a question of fact and degree. The ATO states that income is more likely to come from a business structure where substantial assets, multiple employees or both contribute to producing it.
Should Directors Use Wages, Dividends or Retained Profits?
The right approach depends on business cash flow, personal income needs, PSI exposure and future plans.
Wages and Director Fees
Wages and director fees may generally be deductible to the company when PAYG withholding and reporting obligations are met. They are included in the director’s personal assessable income.
From 1 July 2026, updated individual tax rates and withholding tables apply. The individual 16% rate was reduced to 15%, so remuneration modelling should use the new 2026–27 settings rather than last year’s payroll calculations.
Dividends
Dividends distribute company profits to shareholders. They are not deductible to the company, although they may carry franking credits representing company tax already paid.
Directors should also check the company’s corporate tax rate for imputation purposes. The maximum franking credit may depend on prior year turnover and passive income information, so the franking rate should not be assumed simply from the current year company tax rate.
Retained Profits
Retaining profits may support genuine business goals, but the company should record the commercial purpose. Directors should also review shareholder and director loan accounts so company funds are not withdrawn informally or treated as personal money.
What Should Company Directors Check Now?
Before finalising the 2026–27 tax strategy, directors should review:
Whether the company qualifies for the 25% base rate entity tax rate.
Whether income is PSI, PSB income or income from a broader business structure.
The commercial reason for retaining profits.
Wages, director fees, PAYG withholding and payroll records.
The franking account and rate used for dividends.
Director and shareholder loan balances.
Company resolutions, shareholdings, officeholders and registered details.
Sageon’s corporate secretarial services support companies with statutory records, officeholder details, share structures and other corporate administration requirements.
Frequently Asked Questions
Is Every Small Company Taxed at 25%?
No. The company must satisfy both the aggregated turnover test and the passive income test.
Can a PSB Retain All Its Profits?
Not automatically. Passing a PSB test does not prevent Part IVA from applying to an arrangement that inappropriately diverts or retains PSI.
Does Paying a Dividend Reduce Company Taxable Income?
No. A dividend is a distribution of company profit, not a deductible expense.
Did Company Tax Rates Change on 1 July 2026?
No change to the general 25% and 30% company tax rate framework has taken effect for 2026–27. However, updated individual tax rates affect comparisons between wages, director fees and dividends.
Review the Rate and the Income Behind It
The correct company tax rate is only the starting point. Directors also need to understand how the income was earned, whether PSI or PSB rules apply, why profits are being retained and whether wages and dividends have been properly calculated and documented.
Sageon combines proactive tax planning, company compliance and practical commercial support to help directors make informed decisions for the 2026–27 financial year.
Book a company tax review with the Sageon team and get clarity on the 25% or 30% rate, PSI exposure, director remuneration, dividends and retained profits.
This article is current as at 14 July 2026 and provides general information only. It does not constitute personal tax, legal or financial advice. Seek professional advice before acting.
