For business owners in Australia, understanding the taxation on company profits is essential for effective financial management and compliance. As a company, the profits you earn are subject to corporate taxation, which has its own set of rules and rates. Here’s an overview of how company profits are taxed in Australia, from an accountant’s standpoint.

1. Corporate Tax Rate

  • Standard Rate: As of my last update in April 2023, the standard corporate tax rate in Australia is 30%. This applies to most companies.
  • Lower Rate for Base Rate Entities: For smaller businesses, known as ‘base rate entities,’ a lower tax rate applies. These are companies with an aggregated turnover of less than a specific threshold (which periodically changes) and derive no more than 80% of their income in passive forms. The lower rate has been 25% but check the current rate as it may have changed.

2. Calculating Taxable Profit

  • Assessable Income: Your company’s taxable profit is calculated by taking the total assessable income and subtracting allowable deductions. Assessable income includes all ordinary income and statutory income.
  • Allowable Deductions: These can include business expenses such as operating expenses, business travel, staff salaries, and depreciation on assets.

3. Payment of Corporate Tax

  • Annual Lodgment: Companies must lodge an annual company tax return with the Australian Taxation Office (ATO), which details income, deductions, and the tax payable.
  • Instalments: Companies may also be required to pay tax in instalments throughout the year based on their expected tax liability.

4. Dividend Imputation System

  • Franking Credits: Australia’s dividend imputation system prevents the double taxation of company profits. When a company pays dividends to its shareholders, it may attach franking credits, which represent the tax already paid by the company.
  • Benefit to Shareholders: Shareholders can use franking credits to offset their own tax liabilities, reducing the amount of tax they need to pay on dividends.

5. Capital Gains Tax (CGT)

  • CGT on Asset Disposal: Companies are also subject to Capital Gains Tax when they sell an asset for more than it cost. This gain is included in the company’s assessable income and taxed at the corporate tax rate.
  • CGT Concessions: Certain concessions and exemptions may apply, particularly for small businesses.

6. Goods and Services Tax (GST)

  • GST Registration: If your company’s turnover is above the GST registration threshold, you must register for and charge GST on taxable sales.
  • GST Credits: Companies can claim credits for the GST included in the price of goods and services purchased for business use.

7. State Taxes

  • Payroll Tax: Depending on the size of your payroll, your company may be liable for payroll tax, which varies by state and territory.
  • Other State Taxes: Other state-based taxes may apply depending on your business activities and location.

Understanding the taxation of company profits in Australia is crucial for corporate compliance and strategic financial planning. The corporate tax rate, how taxable profit is calculated, payment modalities, the dividend imputation system, CGT, GST, and state taxes are all key components. As tax laws and rates can change, it’s advisable to consult with a professional accountant for the latest information and tailored advice for your company’s specific situation.