Division 296 is now law. From 1 July 2026, if your total superannuation balance exceeds $3 million on 30 June, you pay an extra 15% on the proportion of your fund’s realised earnings above that threshold, taking the effective rate to about 30%. A second tier adds 25% (about 40% effective) on earnings above $10 million.

Want a quick estimate first? Try our Division 296 tax calculator to see the additional tax on the earnings of your super balance above $3 million.

For years the $3 million super tax was a proposal that might never happen. It has happened. The Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 received royal assent on 13 March 2026 and applies from the 2026-27 financial year, with the first test taken on 30 June 2027 (ATO, Better targeted superannuation concessions). If you are a business owner who has spent a decade building super, or an SMSF trustee holding a factory, a commercial premises or your business’s operating property inside the fund, this is now a live planning issue, not a headline. This article is the action-focused companion to our general Division 296 explainer: it is written for owners and trustees who need to know what to actually do before 30 June 2027. I am Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA, and at Pinnacle Accounting & Advisory we are already restructuring client positions in response to this law.

What Division 296 is now that it is law

Division 296 is an additional tax on the earnings attributable to the part of your total superannuation balance (TSB) that sits above $3 million. It does not replace the tax your fund already pays; it stacks on top. The concessional environment inside super still applies to your first $3 million. Above that, the concession is wound back. The law received royal assent on 13 March 2026 and takes effect for 2026-27 and later years.

Two features matter for planning. First, the tax is levied on the individual, not the fund, and it is assessed on your TSB across all your super accounts combined, not fund by fund. Second, after a long and contested consultation, the final law taxes actual realised earnings, not the unrealised paper gains that dominated the original 2023 proposal. In our experience that single change transforms how a well-advised trustee should hold assets inside super.

Who actually gets caught

You are caught if your total superannuation balance exceeds $3 million on 30 June of the relevant year. The threshold (called the large super balance threshold) is set at $3 million for 2026-27 and is indexed to CPI in $150,000 increments; the second threshold is $10 million, indexed in $500,000 increments. Crucially, this is a rising tide: balances comfortably under $3 million today can cross it through contributions and growth.

The two groups we see most exposed are established business owners who have maximised super for years and now sit near or above $3 million, and SMSF trustees holding lumpy, illiquid assets. If your self-managed fund owns your business premises, a commercial property, or the land your operation runs from, a single revaluation or a sale can push your TSB well past the threshold in one year. The people who feel this hardest are not the ultra-wealthy; they are ordinary owners whose largest asset happens to sit inside a fund.

How the tax is calculated: a worked example

Division 296 uses a proportion method. You do not pay the extra tax on all your earnings, only on the slice attributable to the balance above the threshold. The formula is the additional rate multiplied by the proportion of your TSB above $3 million, multiplied by your realised earnings for the year.

Take Megan, aged 58, with a TSB of $4.5 million on 30 June 2027 and $500,000 of realised earnings in 2026-27. The proportion of her balance above $3 million is ($4.5m minus $3m) divided by $4.5m, which is 33.33%. Her Division 296 tax is 15% multiplied by 33.33% multiplied by $500,000, which equals $25,000. That $25,000 is on top of the tax her fund already paid on those earnings, and she can choose to pay it personally or release it from super.

The $10 million tier and the real effective rates

Above $10 million, a second tier applies. Earnings attributable to the proportion of your TSB between $3 million and $10 million carry an additional 15% (roughly 30% effective once the fund’s own tax is counted), while earnings attributable to the proportion above $10 million carry an additional 25% (roughly 40% effective). The design is graduated, so only the slice of earnings tied to the highest band pays the top rate.

Thirty to forty per cent is still competitive against the top personal marginal rate of 47% (including Medicare levy, 2025-26, per the ATO individual income tax rates). That is the point most commentary misses: Division 296 narrows the super advantage, it does not erase it. Whether super remains the right home for a given dollar becomes a genuine calculation rather than an automatic yes.

Why SMSF trustees with property or illiquid assets must act first

The liquidity trap is the biggest practical risk for SMSFs. Division 296 tax is assessed personally, but you can elect to release the amount from your fund. If your SMSF’s main asset is a building, there may be no cash to release, and a tax bill triggered by a paper revaluation followed by an eventual sale can force an awkward decision at the worst time. Because the final law taxes realised earnings, the timing of when you crystallise gains inside the fund is now something you control and should plan.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is trustees treating a large SMSF property as set-and-forget. Under Division 296 the questions become: when will this asset be revalued, when might it be sold, and does the fund hold enough liquidity to fund a resulting liability without a fire sale. Those questions should be answered now, not in the year of sale.

Planning responses before 30 June 2027

There is no single fix, and anyone promising one should be treated with caution. What works is a considered mix, chosen for your circumstances, put in place before the first test date. These are the levers we work through with clients.

• Reconsider whether super is still the right destination. If you are near $3 million, additional concessional and non-concessional contributions may now push more of your earnings into the Division 296 zone. For some owners, directing surplus profit into a bucket company capped at the 30% corporate rate, or into investments held personally or in a family trust, is more efficient than adding to a balance already above the threshold.
• Review structure across the household. Two members with $2.5 million each are outside Division 296; one member with $5 million is inside it. Contribution splitting and evening balances between spouses over time is a legitimate, long-game response.
• Plan the timing of realised gains. Because only realised earnings count, when you sell or crystallise assets inside the fund now matters. Spreading disposals across years, or timing them against years of lower TSB, can materially change the bill.
• Fix the liquidity gap. SMSFs holding property should model the worst-case liability and ensure the fund, or the members, can meet it without being forced to sell.
• Get valuations right. Since the balance on 30 June drives everything, defensible, well-timed asset valuations are no longer a compliance afterthought; they are a planning tool.

These interact with your wider structure, which is why we look at Division 296 alongside your trading entity, your year-round tax planning and your broader superannuation strategy rather than in isolation.

What business owners should do now

First, calculate your real total superannuation balance across every account and project it forward three to five years including likely contributions and growth. Second, if an SMSF holds property or other illiquid assets, model a revaluation and a sale and check the fund’s liquidity. Third, decide, deliberately, where each future dollar of surplus should live: super, a company, a trust, or personally. None of this needs panic, but all of it needs a plan before 30 June 2027, because the levers that work best are the ones set up early.

Frequently Asked Questions

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A trust is a legal arrangement where a trustee holds and manages assets for the benefit of beneficiaries. In Australia, business owners use trusts, most commonly a discretionary (family) trust, to distribute income tax-effectively across a family group, protect assets from creditors, and plan succession. Set up and managed correctly, a trust remains one of the most powerful structures available for lowering tax legally.

If you are a business owner thinking about protecting your wealth and minimising tax, you have almost certainly heard the word “trust”. But there is not just one type of trust, and the way you set it up, who you appoint as trustee, and how you handle distributions each year make an enormous difference to your tax position and asset protection. This is the pillar guide to trusts in Australia. It explains every main type of trust, how bucket companies fit in, how distributions and Section 100A work, the proposed 30% trust tax, capital gains tax inside trusts, and how trusts protect assets. It also links to every detailed guide in the series.

Mina Baselyous (CPA and Chartered Tax Advisor, Registered Tax Agent) has structured trusts for Melbourne business owners for years, and Pinnacle Accounting & Advisory holds 81 five-star Google reviews. In our experience working with clients, the difference between a trust that saves tax and one that creates ATO risk is almost always in how it is managed year to year, not in the deed itself.

What Is a Trust in Australia?

A trust is a legal relationship where one person or entity, the trustee, holds and manages assets on behalf of others, the beneficiaries. A trust is not a separate legal entity in the way a company is; the trustee is the legal owner of the assets but holds them for the benefit of the beneficiaries under the terms of a trust deed.

Trusts are used in Australia for holding business assets and distributing income tax-effectively, protecting assets from creditors or personal liability, estate planning and succession, holding investments on behalf of family members, and separating the ownership of assets from those who control them. The trust deed sets out the rules, the beneficiaries, and the powers of the trustee. Getting the deed right from the start is critical, because changing it later can trigger stamp duty and other tax consequences.

The Main Types of Trusts in Australia

There are several types of trust, and the right one depends on your goals. Discretionary trusts suit family businesses and wealth building, unit trusts suit joint ventures with defined ownership, and testamentary trusts are an estate planning tool. Here is an overview of the structures most commonly used by business owners and investors in Australia.

1. Discretionary Trust (Family Trust)

A discretionary trust, also known as a family trust, is by far the most common trust structure used by small and medium business owners in Australia. The defining feature is that the trustee has full discretion over how trust income and capital is distributed among beneficiaries each year.

This flexibility is what makes discretionary trusts so powerful for tax planning. Each financial year the trustee can decide who receives income and in what amounts. If your spouse is on a lower income, they can receive a larger share. If you have adult children on lower tax rates, they can receive distributions too. This allows the family group to manage its overall tax bill in the most effective way possible.

Key features of a discretionary (family) trust:

• The trustee decides who receives income each year; beneficiaries have no fixed entitlement
• Beneficiaries are typically defined broadly (the named individual, their spouse, their children, and related entities)
• The trust can distribute to any eligible beneficiary in any proportion
• A family trust election can be made to access losses and franking credits, which restricts the family group for those purposes
• Income is generally taxed at each beneficiary’s marginal rate, making income splitting highly effective

Best for: Family groups and business owners wanting flexibility in tax planning, asset protection and long-term succession. The discretionary trust is the cornerstone of most business structuring strategies we implement at Pinnacle, and the detailed trust distribution strategies you use each year are what unlock the savings.

2. Unit Trust

A unit trust is a trust where the beneficial interest is divided into fixed units, similar to shares in a company. Each beneficiary holds a set number of units, and distributions are made proportionally based on those holdings. Unlike a discretionary trust, the trustee has no discretion over who receives what; distributions are fixed by unit ownership.

Unit trusts are commonly used in joint venture arrangements, investment structures, and commercial situations where multiple unrelated parties want a clear, documented stake in an asset or business.

• Fixed entitlements; each unitholder receives income in proportion to their units
• Units can be bought, sold or transferred subject to the trust deed
• Clear ownership structure, ideal when parties want defined interests
• Less flexible for tax planning than a discretionary trust
• More transparent and predictable, better suited to commercial arrangements between unrelated parties

Best for: Joint ventures, property investment syndications, and commercial arrangements where defined ownership interests are required.

3. Testamentary Trust

A testamentary trust is a trust created under a deceased person’s will; it comes into existence only upon death. The terms are set out in the will itself, and the trust holds assets from the deceased estate for the benefit of named beneficiaries such as a surviving spouse or minor children.

Testamentary trusts offer significant tax advantages, particularly when assets are held for minor children. Income distributed to children from a testamentary trust is taxed at adult marginal rates, not the punitive rates that normally apply to a minor’s unearned income, making them a highly effective estate planning tool. See our detailed guide to testamentary trusts in Australia.

Best for: Estate planning, particularly families with minor children or beneficiaries who need long-term asset protection.

4. Hybrid Trust

A hybrid trust combines elements of both a discretionary trust and a unit trust. It typically has two classes of beneficiaries: unit holders with fixed entitlements, and discretionary beneficiaries who receive distributions at the trustee’s discretion. Hybrid trusts were popular for several years as a way to claim deductions on funds borrowed to acquire trust units. However, the ATO has scrutinised these arrangements closely and many hybrid trust strategies have attracted adverse rulings. Specialist tax advice is essential before proceeding with a hybrid trust.

5. Fixed Trust

A fixed trust is one where the beneficial interests of each beneficiary are fixed and cannot be varied by the trustee. All beneficiaries have a defined, non-discretionary entitlement to income and capital. Fixed trusts are less common in small business contexts but appear frequently in managed investment schemes and property funds. They are also proposed to be excluded from the new 30% minimum trust tax discussed below.

6. Special Disability Trust

A special disability trust (SDT) is designed to hold assets for the benefit of a person with a severe disability. The ATO and Services Australia recognise SDTs and provide concessional treatment in means testing for government benefits. Contributions to an SDT may also attract gift and assets test concessions. This structure suits families with a member who has a severe disability who want to plan for long-term care and financial security.

Discretionary Trust vs Unit Trust: Key Differences

The two structures most commonly used by business owners are the discretionary trust and the unit trust. Here is how they compare.

Feature	Discretionary Trust	Unit Trust
Income distribution	At trustee’s discretion each year	Fixed by unit holdings
Tax flexibility	High, income split across beneficiaries	Low, distributions are proportional
Ownership clarity	No fixed interests, beneficiaries form a class	Clear, units define ownership percentage
Best use case	Family business, wealth building, tax planning	Joint ventures, commercial arrangements
Asset protection	Strong, creditors cannot attach a discretionary interest	Moderate, unit interests may be attachable

Bucket Companies: Capping Trust Tax at the Company Rate

A bucket company is a company set up to receive distributions from a family trust, so that income the trust cannot distribute tax-effectively to individuals is taxed at the company rate of 25% or 30% rather than a top marginal rate of 47%. It is one of the most common and effective tools paired with a discretionary trust for established business owners.

The reason bucket companies exist is a hard rule of trust taxation: a trust does not retain earnings at a low rate. All trust income must be distributed each year, or the trustee is taxed on the undistributed amount at 47%. Once the family members with low marginal rates have received sensible distributions, a bucket company can catch the surplus at the company rate. The retained funds inside the bucket company can then be used for investment or reinvested into the business. A holding company can sit above the structure to hold valuable assets away from trading risk.

The catch is Division 7A. If the trust does not actually pay the cash to the bucket company, the unpaid amount becomes an unpaid present entitlement, and the ATO can treat it as a loan that must be put on complying Division 7A terms. This is exactly the kind of detail that needs active management each year, which is why we treat a trust and bucket company structure as an annual advisory job, not a set-and-forget arrangement.

Trust Distributions and Section 100A

Trust distributions are the annual decisions the trustee makes about who receives the trust’s income. To be effective, they must be resolved and documented before 30 June each year; if they are not, the trustee is taxed on the income at 47%. Getting the resolution right, and making sure the distribution is genuine, is the single most important annual task for any family trust.

Two things matter here. First, the paperwork: the trustee resolution and the supporting trust distribution minutes must be in place by 30 June. Second, the substance: the ATO uses Section 100A to attack “reimbursement agreements”, where income is distributed on paper to a low-tax beneficiary but the real benefit flows back to someone else. Since the ATO finalised its guidance, this is one of the highest-risk areas in trust taxation. Our guide to Section 100A and trust reimbursement agreements explains what is safe and what is not, and the trust distribution strategies guide shows how to distribute correctly.

In practice, says Mina Baselyous (CPA, CTA), the mistake we see most is a trust that distributes to adult children who never actually receive the money. That is precisely the pattern Section 100A targets, and it is entirely avoidable with the right approach.

The Proposed 30% Minimum Tax on Discretionary Trusts

In the 2026-27 Federal Budget, announced on 12 May 2026, the Government proposed a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028. It is not yet law. If enacted, trustees would pay at least 30% on trust income, with beneficiaries other than corporate beneficiaries receiving non-refundable credits for the tax paid by the trustee.

The proposal is significant because it would limit the benefit of distributing income to family members on low marginal rates, which is the core advantage of a discretionary trust today. The measure is proposed to exclude fixed trusts, widely held trusts, complying superannuation funds, charitable trusts, special disability trusts and deceased estates, and it would come with a time-limited three-year restructure rollover to move assets out of discretionary trusts. Our guide to the proposed 30% family trust tax explains who it really affects. You can also read the ATO summary of the proposed minimum tax on discretionary trusts. Because it is still a proposal, the right response is not to panic or unwind a trust, but to have your structure reviewed so you are ready whichever way the legislation lands.

Capital Gains Tax Inside a Trust

Trusts can access the same capital gains tax concessions as individuals, and this is one of their biggest long-term advantages. When a trust sells an asset it has held for more than 12 months, the capital gain can be distributed to individual beneficiaries who then apply the 50% CGT discount on their share. Companies do not get the 50% discount, which is a key reason many owners hold appreciating assets in a trust rather than a company.

Trusts can also access the small business CGT concessions, which can dramatically reduce or eliminate the tax on the sale of an active business asset. Depending on your circumstances, these include the 15-year exemption, the 50% active asset reduction, the retirement exemption and the rollover. When a business is eventually sold, the interaction between the trust, the concessions such as the CGT 15-year exemption and the CGT retirement exemption, and superannuation contributions is where the largest tax savings are found, and where careful advance planning matters most.

Asset Protection: What a Trust Does and Does Not Do

A properly structured discretionary trust provides strong asset protection because no beneficiary has a fixed entitlement to trust assets. If a beneficiary is sued or becomes bankrupt, their creditors generally cannot reach assets held in the trust, because the beneficiary only has a right to be considered for a distribution, not an owned interest. This is a major reason business owners hold the family home, investments and business goodwill outside their personal names.

Protection is not absolute. It depends on who controls the trust, how and when assets were transferred in (transfers made to defeat known creditors can be clawed back), and whether a corporate trustee is used. We strongly recommend a corporate trustee rather than an individual, because it provides continuity, cleaner separation, and better liability protection. For businesses that borrow inside super to buy property, a specific kind of trust applies, explained in our guide to the SMSF bare trust used in limited recourse borrowing.

Which Type of Trust Is Right for Your Business?

The right structure depends on your goals, the nature of your business, and who else is involved. Here are some common scenarios:

You are a business owner wanting tax flexibility and asset protection. A discretionary (family) trust is almost always the starting point. It gives you maximum flexibility over distributions and strong protection for business assets. For a direct comparison with incorporating, see our company vs trust guide.

You are entering a joint venture or commercial partnership. A unit trust is typically more appropriate. Each party has a clearly defined interest, which avoids disputes over entitlements down the track.

You are planning your estate. A testamentary trust should be considered as part of your will, especially with minor children or complex family circumstances.

You hold investment property with business partners. A unit trust often suits better than a company, particularly where you want to pass through the 50% CGT discount to individual unitholders subject to the trust loss rules.

In many cases business owners operate more than one trust at once, for example a discretionary trust for business income alongside a unit trust for investment property held with a partner. Your structure should be designed with your complete picture in mind, not in isolation. Trusts also sit within the broader question of which entity to trade through, covered in our complete guide to business structures in Australia.

How to Set Up a Trust in Australia

Setting up a trust in Australia involves several key steps:

1. Decide on the trust type based on your goals, choosing the most appropriate structure
2. Appoint a trustee, either an individual or a corporate trustee. We strongly recommend a corporate trustee for most business trusts for better protection and continuity
3. Prepare the trust deed, drafted by a solicitor, setting out the rules, beneficiaries, trustee powers and distribution provisions
4. Pay stamp duty where applicable; some states charge stamp duty on trust establishment and requirements vary by state
5. Apply for a Tax File Number and ABN; the trust must have its own TFN, and an ABN is required if the trust carries on an enterprise
6. Open a trust bank account; all trust transactions must flow through a separate account in the trustee’s name as trustee for the trust
7. Register for GST if required, which applies once trust turnover exceeds $75,000

As a rough guide, expect $1,500 to $3,000 or more to set up a properly structured discretionary or unit trust including the deed, trustee company and associated registrations. At Pinnacle, we coordinate the full setup process for our clients, from choosing the right structure through to ensuring everything is lodged, operational and integrated into your broader tax strategy. Our business structuring services page explains how. For the ATO’s own overview, see the ATO’s guidance on trusts.

Explore the Trusts Series

This guide is the hub for our trust content. Use these detailed guides to go deeper on the topic you need right now:

• Trust distribution strategies: how to minimise tax with a family trust
• Section 100A and trust reimbursement agreements explained
• Trust distribution minutes: why they matter
• The proposed 30% family trust minimum tax
• Family trust election and interposed entity election
• Corporate trustee vs individual trustee
• What is a testamentary trust
• Does a family trust need to register for GST on residential rent
• SMSF bare trust and limited recourse borrowing
• Buying an investment property in a trust: tax, land tax and asset protection
• Company vs trust: which structure is right
• What is a holding company and do you need one

Frequently Asked Questions

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Most business owners do not fire their accountant. They just quietly grow past them. The accountant who was perfect when you were a sole trader with a shoebox of receipts is often the wrong fit once you have staff, multiple entities, and real decisions to make. The relationship does not fail loudly, it just stops keeping up.

This guide, written by Mina Baselyous (CTA, CPA) of Pinnacle Accounting & Advisory in Melbourne, lays out the clearest signs you have outgrown your accountant, and what a better relationship should feel like. If several of these ring true, it is probably time for a conversation.

1. You only hear from them at tax time

If the only contact you have with your accountant is an email in July asking for your records, you have a compliance service, not an adviser. A business past the start-up stage needs someone in the conversation during the year, when decisions are actually being made and tax can still be planned. Silence between lodgements is the most common sign of an outgrown relationship.

2. Your tax bill is always a surprise

Tax should be planned, not discovered. If every year you are blindsided by what you owe, no one is doing proactive planning. A good adviser models your position before 30 June, tells you what is coming, and puts strategies in place while there is still time to act. Surprises at lodgement mean the planning window has already closed.

3. Your structure has never been reviewed

The structure that suited you as a sole trader is often wrong once you are profitable and growing. If your accountant has never raised whether a company, family trust, bucket company, or holding entity would serve you better, they are not thinking about your future, only your paperwork. Structure affects both tax and asset protection, and it should be revisited as you grow. Our guide to business structures in Australia explains the options.

4. You cannot get a straight, timely answer

Slow or vague communication is the complaint we hear most from business owners about their previous accountant. If emails go unanswered for a week and you feel like a nuisance for calling, the relationship is not serving you. You are running a business and you need answers when the decision is in front of you, not a fortnight later.

5. They cannot explain your own numbers to you

Your financial statements should be a tool you use, not a document you sign and file. If your accountant hands over reports without helping you understand what they mean for cash flow, margins, and decisions, you are missing the point of having them. An adviser who cannot translate the numbers into plain English is not helping you run a better business. This is exactly what proper management accounting is for.

6. They never bring you ideas

The best advisers come to you. They spot an opportunity to save tax, flag a risk before it becomes a problem, or suggest a smarter way to structure a purchase. If every idea in the relationship has to come from you, and your accountant simply processes whatever you bring, you have outgrown them. You are effectively paying for a service you could largely direct yourself.

7. You have big decisions coming and no one to talk to

Buying an asset, taking on a partner, hiring, expanding, or selling are the moments where good advice is worth the most. If you are facing decisions like these and your accountant is not someone you would think to call first, that gap is costing you. A proactive adviser wants to be in the conversation before the decision is made, not handed the result afterwards.

What a better relationship looks like

Outgrowing your accountant is not a criticism of them, it is a sign your business has moved to a stage that needs more. The right adviser at this stage keeps your books accurate, plans your tax throughout the year, reviews your structure as you grow, explains your numbers, and is genuinely available when you need them. That is the standard established owners should expect. If you are weighing up a change, our guide to choosing the best small business accountant in Melbourne walks through exactly what to look for, and switching is more straightforward than most owners assume.

Frequently Asked Questions

What are the signs I have outgrown my accountant?

The clearest signs are that you only hear from them at tax time, your tax bill is always a surprise, your structure has never been reviewed as you have grown, communication is slow, they cannot explain your numbers, and they never bring you proactive ideas. If your business now has staff, multiple entities, or big decisions coming and your accountant still treats it like a simple return, you have likely outgrown them.

Is it hard to change accountants?

No, changing accountants is more straightforward than most owners expect. Your new accountant handles the handover by requesting your records and history from the previous firm through a standard professional process called an ethical clearance. You can switch at any time of year, though just after lodgement or before tax planning season are the smoothest points.

When is the best time to switch accountants?

You can switch at any time, but the smoothest points are just after your annual returns are lodged or before tax planning season begins, so your new adviser can start with a clean slate and plan the year ahead. Do not stay with the wrong accountant simply because the timing feels awkward, the cost of waiting is usually greater than the inconvenience of switching.

Will changing accountants trigger an ATO problem?

No. Changing accountants is completely normal and does not attract ATO attention on its own. Your new registered tax agent simply updates their authority to act on your behalf and requests your prior records. Businesses change accountants regularly as they grow, and doing so is a routine part of finding the right adviser for your stage.

What should I look for in a new accountant?

Look for a Registered Tax Agent who is proactive rather than compliance-only, properly qualified (ideally CPA or Chartered Accountant plus a Chartered Tax Adviser designation), responsive, and able to explain your numbers in plain language. The best fit for an established business is an adviser who plans your tax during the year, reviews your structure, and is in the conversation before your big decisions are made.

Frequently Asked Questions

If these signs feel familiar, it may be time to talk to a proactive small business accountant in Melbourne who plans ahead rather than just lodging in June.

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“How much does an accountant cost?” is one of the most common questions business owners ask, and one of the hardest to get a straight answer to. Fees are rarely published, every business is different, and the honest answer is “it depends”. This guide gives you real ranges for Melbourne, explains what actually drives the price, and shows you why the cheapest accountant is almost never the best value.

It is written by Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA who runs Pinnacle Accounting & Advisory in Melbourne. The aim is to help you understand what you should be paying, and more importantly, what you should be getting for it.

Typical accountant fees in Melbourne (2026)

Every business is different, so treat these as broad guides rather than quotes. As a general picture of the Melbourne market:

• Individual tax return (simple): roughly $150 to $400.
• Sole trader with business schedule: roughly $400 to $1,200.
• Company or trust financial statements and tax return: roughly $2,000 to $5,000+ per entity, depending on complexity.
• BAS preparation and lodgement: roughly $150 to $600 per quarter.
• Bookkeeping: roughly $60 to $120 per hour, or a fixed monthly package.
• Ongoing advisory or Virtual CFO support: commonly $1,000 to $5,000+ per month, depending on scope.

A small business running a company and a family trust, employing a few staff, and wanting proactive advice will typically invest somewhere between $5,000 and $15,000+ a year across compliance and advisory combined. That sounds like a lot until you compare it with the tax a good adviser can legally save you, which is often a multiple of the fee.

What drives the cost of an accountant?

Two businesses with the same turnover can pay very different fees. The main drivers are:

• Number of entities. Each company, trust, or self-managed super fund needs its own set of financial statements and tax return, so a multi-entity structure costs more than a single entity.
• Complexity of your affairs. Multiple income streams, property, investments, international dealings, and GST all add work.
• Quality of your records. Clean, reconciled books cost far less to work with than a shoebox of receipts. Good bookkeeping pays for itself here.
• Compliance only vs advisory. A return-and-lodge service is cheaper than a relationship where your accountant plans your tax, reviews your structure, and meets with you during the year.
• The experience and qualifications of the adviser. A Chartered Tax Adviser with deep expertise charges more than a junior processor, and usually saves you more.

Fixed fees vs hourly rates

Traditionally accountants charged by the hour, which left clients afraid to pick up the phone in case the clock was running. Most quality firms now offer fixed-fee arrangements with a clear scope, so you know exactly what you are paying and can call whenever you need to. Fixed fees are generally better for business owners because they make cost predictable and encourage the ongoing communication that actually creates value. When comparing accountants, ask whether the fee is fixed, what is included, and what would trigger an extra charge.

Why the cheapest accountant is rarely the best value

It is tempting to choose on price, especially when accountants can look interchangeable from the outside. But the real cost of an accountant is not the fee, it is the tax you overpay and the opportunities you miss when no one is planning ahead.

A cheap, compliance-only accountant files what happened and sends a bill. A proactive adviser who costs more but plans your tax during the year, gets your structure right, and helps you make better decisions will usually save you many times the difference in fees. We see this constantly: a business switches from the cheapest option to proper advisory and the tax saved in the first year alone dwarfs the increase in fees. If your goal is to pay less tax legally, the accountant you choose matters far more than the price you pay.

How to think about value, not just price

Before you compare quotes, get clear on what you actually need. A simple sole trader may genuinely only need an annual return. But an established business turning over $500,000 or more, with staff and growth ambitions, needs an adviser, and comparing that adviser purely on price is the wrong lens.

Ask instead: how much tax could this accountant save me, will they help me make better decisions, and will they be there when I need them? A useful next step is understanding what proactive support looks like, which we cover on our Virtual CFO and business advisory pages. If you are weighing up whether your current accountant is worth what you pay them, our guide to choosing the best small business accountant in Melbourne walks through exactly what to look for.

Frequently Asked Questions

How much does an accountant cost for a small business in Melbourne?

A small business in Melbourne typically pays between $2,000 and $5,000+ per year for company or trust financial statements and tax returns, and often $5,000 to $15,000+ a year in total once bookkeeping, BAS, and proactive advisory are included. The exact figure depends on how many entities you run, how complex your affairs are, and whether you want compliance only or full advisory support.

How much should I pay for an accountant?

You should pay based on the value the accountant creates, not just the lowest quote. A simple individual return might cost $150 to $400, while a growing business needing year-round advice will invest several thousand dollars a year. The right question is not “what is the cheapest?” but “how much tax will this accountant save me and how much better will my decisions be?”

Why do accountants charge so differently?

Accountant fees vary because of the number of entities you run, the complexity of your affairs, the quality of your records, whether you want compliance only or advisory, and the experience of the adviser. A qualified Chartered Tax Adviser doing proactive planning charges more than a junior processing returns, but usually saves you considerably more in tax.

Is a fixed-fee accountant better than hourly?

For most business owners, a fixed-fee arrangement is better. It makes your cost predictable, removes the fear of being charged every time you call, and encourages the ongoing communication that creates value. When comparing accountants, ask whether the fee is fixed, exactly what is included, and what would trigger an additional charge.

Can a good accountant save me more than they cost?

Yes. A proactive accountant who plans your tax during the year, gets your structure right, and helps you make better decisions will usually save you far more than the difference in their fees. For established businesses, the tax legally saved in the first year of proper advisory often exceeds the entire annual fee, which is why judging an accountant on price alone is a mistake.

Frequently Asked Questions

The real value is in the advice: see what to expect from a proactive small business accountant in Melbourne focused on saving you tax, not just filing it.

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Search “best accountant Melbourne” and you will get a wall of listicles, paid ads, and firms all claiming to be number one. None of that tells you what you actually need to know: how to tell a good small business accountant from an average one, what you should pay, and which questions separate a proactive adviser from someone who simply files last year’s numbers and sends a bill.

This guide answers those questions directly. It is written by Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA who runs Pinnacle Accounting & Advisory in Melbourne, and it is built around the real decisions business owners face when they have outgrown a basic compliance accountant and want someone genuinely in their corner.

What a small business accountant should actually do for you

At a minimum, an accountant prepares and lodges your financial statements, business tax returns, and BAS, and keeps you compliant with the ATO. That is the floor, not the ceiling. A good small business accountant does considerably more: they review your structure, plan your tax throughout the year rather than in hindsight, help you read your numbers, and are in the conversation before you make big decisions like buying an asset, taking on a partner, or expanding.

The difference matters because most of the opportunities to save tax and structure a business well are only available before the financial year ends. An accountant who only appears after 30 June can tell you what happened. An accountant who is involved during the year can change what happens.

Compliance-only vs proactive advisory: the distinction that matters most

This is the single biggest decision when choosing an accountant, and most business owners do not realise there is a choice to make.

A compliance-only accountant is reactive. They wait until the year is over, record what happened, lodge it, and invoice you. You chase them for answers. They rarely call you unless a deadline is looming. For a very simple business this can be enough, but it leaves money and opportunities on the table.

A proactive advisory accountant plans ahead. They meet with you during the year, model your likely tax position before June, make sure your structure fits where the business is going, and give you management reporting you can actually use to make decisions. If you are turning over $500,000 or more, employing staff, and thinking about growth, this is the level of support that pays for itself. You can read more about what that looks like on our business advisory in Melbourne page.

How much should you pay for an accountant in Melbourne?

Fees vary widely depending on the complexity of your business, the number of entities you run, and whether you want compliance only or full advisory. A sole trader tax return might cost a few hundred dollars, while a company with a trust, staff, and year-round advisory support will pay several thousand dollars a year. The cheapest quote is rarely the best value, because a good accountant should save you far more in tax than they charge in fees.

We have written a full breakdown of the fee ranges and what drives them in our guide to how much an accountant costs in Melbourne. The short version: judge an accountant on the value they create, not the invoice they send.

7 questions to ask before you hire an accountant

Take these to any accountant you are considering. The answers will tell you very quickly whether you are dealing with a compliance processor or a genuine adviser.

• Do you do tax planning during the year, or only at year end? A proactive adviser will describe a mid-year planning process. A compliance-only firm will talk only about lodgement.
• Will you review my business structure? The right structure (company, family trust, bucket company, or a combination) affects both tax and asset protection. It should be reviewed, not assumed.
• How quickly do you respond to clients? Slow communication is the most common complaint business owners have about their accountant. Ask directly.
• Who will I actually deal with? In some firms you never speak to the qualified adviser. Make sure you know who is handling your work.
• Are you a registered tax agent, and what are your qualifications? Look for a Registered Tax Agent, and ideally CPA or Chartered Accountant status, plus a Chartered Tax Adviser (CTA) for genuine tax depth.
• Can you help me understand my numbers, not just lodge them? Management reporting and plain-English explanations are the mark of an adviser who wants you to make better decisions.
• How do you charge, and what is included? Fixed-fee arrangements with a clear scope prevent surprise bills and tell you the firm has thought about the relationship.

Red flags: signs an accountant will hold your business back

Some warning signs are obvious only in hindsight. Watch for these before you commit:

• You only hear from them once a year, at tax time.
• They never ask about your goals, only your receipts.
• Your tax bill is always a surprise, never a plan.
• They have never suggested reviewing your structure, even as you have grown.
• Emails and calls go unanswered for days or weeks.
• They cannot explain your own numbers to you in plain language.
• Their advice stops at “here is your return, please sign”.

If several of these sound familiar, you may have simply outgrown your current accountant. We cover that in detail in our guide to the signs you have outgrown your accountant.

How to check an accountant is qualified and registered

Anyone can call themselves an accountant, but only a Registered Tax Agent can legally charge to prepare and lodge your tax returns. Before you engage anyone, confirm their registration on the Tax Practitioners Board register.

You can search any adviser or firm for free on the TPB public register to confirm they hold current tax agent registration. Beyond registration, look for professional qualifications: a CPA or Chartered Accountant designation shows accounting rigour, and a Chartered Tax Adviser (CTA) from The Tax Institute signals genuine specialist tax knowledge. Mina holds all three.

Local vs online: does location still matter?

Cloud accounting means your accountant no longer has to be around the corner, and plenty of good advisers work with clients across the country. What matters more than a postcode is responsiveness, proactivity, and whether they understand your business. That said, a Melbourne-based adviser who knows Victorian payroll tax, local industry conditions, and can meet you when it counts still offers a real advantage for local business owners. If you want an adviser who combines both, our team works with owners across Melbourne and Australia-wide from our office in the south-east. Learn more about our approach as a small business accountant in Melbourne.

Frequently Asked Questions

How do I choose the best accountant for my small business?

Choose an accountant based on whether they are proactive rather than compliance-only, properly qualified and registered, responsive, and able to explain your numbers in plain language. Ask whether they do tax planning during the year, whether they will review your structure, and who you will actually deal with. The best accountant for a growing business is one who is in the conversation before decisions are made, not just after the financial year ends.

What qualifications should a good accountant have?

A good accountant should be a Registered Tax Agent, which you can verify on the Tax Practitioners Board register. Look also for a CPA or Chartered Accountant designation for accounting rigour, and a Chartered Tax Adviser (CTA) qualification for specialist tax expertise. These credentials show the adviser is held to professional standards and has genuine technical depth.

Is it worth paying more for a proactive accountant?

Yes, for most established businesses it is. A proactive accountant plans your tax throughout the year, reviews your structure, and helps you make better decisions, which typically saves far more than the difference in fees. The cheapest accountant is rarely the best value because they usually offer compliance only, leaving tax savings and opportunities untouched.

What is the difference between a compliance accountant and an advisory accountant?

A compliance accountant records and lodges what has already happened and is largely reactive. An advisory accountant plans ahead, meets with you during the year, reviews your structure, and gives you reporting you can use to make decisions. Advisory accountants are involved before big decisions are made, which is where the real value and tax savings come from.

How do I know if I have outgrown my current accountant?

Common signs are that you only hear from them at tax time, your tax bill is always a surprise, they have never suggested reviewing your structure as you have grown, and they are slow to respond. If your business is growing but your accountant still treats it like a simple tax return, you have likely outgrown them and would benefit from a proactive advisory relationship.

Frequently Asked Questions

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Before you can invoice a customer, register for GST, or register a business name, you need one thing: an Australian Business Number. The good news is it is free and, for most people, quick. The catch is that you have to be genuinely entitled to one, and getting the application wrong can hold up everything else.

This guide walks through what an ABN is, whether you are entitled to one, how to apply, and the mistakes that cause applications to be delayed or reviewed. It is written for Melbourne business owners who want to start on the right foot.

What is an ABN?

An Australian Business Number (ABN) is a unique 11-digit number that identifies your business to the government, the ATO, and the people you do business with. It is issued through the Australian Business Register (ABR) and it is free to apply for.

Your ABN is used to:

• Invoice customers and be identified on your tax invoices;
• Register for GST and lodge your BAS;
• Claim energy grants and fuel tax credits where eligible;
• Deal with the ATO and other government agencies; and
• Confirm your business details to other businesses through the free ABN Lookup service.

The 47% reason you need an ABN

Here is the one that costs people money. If another business pays you for goods or services and you do not quote an ABN, they are generally required to withhold 47% of the payment and send it to the ATO. You eventually reconcile it through your tax return, but in the meantime your cash flow takes a serious hit. For any business dealing with other businesses, an ABN is non-negotiable.

Are you entitled to an ABN?

Not everyone who wants an ABN can get one. To be entitled, you must be carrying on an enterprise in Australia, broadly, running a business or commercial activity with a genuine intention to make a profit. A one-off private sale or a hobby does not qualify.

Signs you are carrying on an enterprise include operating in a business-like way, keeping records, invoicing clients, having repeat customers, and intending to make a profit. If you apply without a genuine enterprise, the ABR can refuse or cancel the ABN.

Your business structure determines who actually holds the ABN: a sole trader applies as an individual, while a company, partnership or trust applies as that entity. Choosing the right structure first saves you re-applying later.

ABN vs ACN: what is the difference?

These get confused constantly. An ABN is for any business type and is issued by the ABR. An ACN (Australian Company Number) is a 9-digit number issued by ASIC that only companies receive when they are registered as a company. If you operate through a company, you will have both: an ACN for the company itself and an ABN for doing business. Our guide on moving from sole trader to company explains when a company structure is worth it.

How to apply for an ABN

You apply through the Australian Business Register, and it is free; be wary of third-party sites that charge a fee to do it for you. Before you start, have these ready:

• Your tax file number (and those of any associates such as partners or directors);
• Your chosen business structure (sole trader, company, partnership or trust);
• Details of your business activity and start date; and
• Your business contact and location details.

You can apply directly through the Australian Business Register, or have your accountant lodge it as part of setting up your business correctly. Many applications are approved instantly; others are held for review if the details are incomplete or the entitlement is unclear.

ABN, business name and GST: how they fit together

An ABN is one piece of the set-up puzzle. Depending on your plans you may also need to:

• Register a business name with ASIC: required if you trade under anything other than your own personal name;
• Register for GST: compulsory once your turnover reaches $75,000; and
• Register a company with ASIC (getting an ACN) if you choose a company structure.

Doing these in the right order, under the right entity, is what keeps things clean. Our full guide on how to start a business in Australia puts the whole sequence together.

Frequently Asked Questions

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Every time you pay your staff, the ATO expects to hear about it, on the same day, automatically. That is Single Touch Payroll, and if you employ people in Australia it is not optional. And once your total Australian wages grow past the state threshold, you may also face payroll tax in Victoria, a separate obligation many growing employers miss.

For most employers it runs quietly in the background through their payroll software. But when it goes wrong, a missed finalisation, a super figure that does not match, an employee who cannot see their income statement in myGov, it lands squarely on the business owner. And with the shift to STP Phase 2, the amount of detail you are reporting has grown.

This guide explains what Single Touch Payroll is, what you must report, the deadlines that matter, and where employers most often trip up. It is written for Melbourne business owners who want payroll to be one less thing to worry about. If you are still setting up, see our complete guide to how to start a business in Australia.

What is Single Touch Payroll (STP)?

Single Touch Payroll is the way employers report payroll information to the ATO. Instead of sending payment summaries once a year, you report each pay run to the ATO at the time you pay your employees, every payday, through STP-enabled software.

Each STP report sends the ATO three key pieces of information for every employee:

• Salaries and wages: what you paid each person;
• PAYG withholding: the tax you withheld from their pay; and
• Superannuation: the super you are liable to pay on their behalf.

Because the ATO receives this in real time, your employees can see their year-to-date pay, tax and super in their myGov account, and their end-of-year income statement is built automatically from your reports.

Who has to use STP?

Effectively every employer in Australia. STP is mandatory for all businesses that pay employees, including small employers with only one or a handful of staff. The concessions that once applied to very small and closely held employers have largely ended, so if you run payroll, you report through STP.

There are still some special arrangements for closely held payees, family members, directors, shareholders and beneficiaries, who can be reported quarterly rather than each payday in some cases. Getting that concession applied correctly is worth a conversation with your accountant.

STP Phase 2: what changed

STP Phase 2 expanded the detail employers report, without changing the way you lodge. The goal is to reduce duplicate reporting to other government agencies, so more information now flows through your pay events. Key changes include:

• Disaggregation of gross: income is now itemised into components such as overtime, bonuses, allowances, paid leave and directors’ fees, rather than a single gross figure;
• Employment and taxation conditions: details like employment basis (full-time, part-time, casual) and the reason employment ended are reported through STP;
• Income type and country codes: each payment is categorised, which matters for closely held payees, working holiday makers and others.

Modern payroll software handles the mechanics, but only if your pay items are mapped correctly. A poorly configured set-up quietly reports the wrong categories all year, something we regularly find and fix during payroll reviews.

The STP deadlines that matter

Report on or before each payday

Your STP report is due on or before the day you pay your employees. For most businesses this is automatic: you finalise the pay run in your software and the report lodges itself.

Finalise by 14 July

After the end of each financial year you must make an STP finalisation declaration, a tick that tells the ATO your figures for the year are complete and correct. The deadline is 14 July. Once you finalise, your employees’ income statements are marked ‘Tax ready’ in myGov and they (or their accountant) can lodge their tax returns with confidence.

Miss the finalisation and your staff see ‘Not tax ready’ against their income, a common source of frustrated phone calls in July. It is a small step that makes a big difference to your team.

Where employers go wrong with STP

• Not finalising by 14 July: the most common issue, and the one your employees notice first.
• Incorrect pay item mapping under Phase 2: allowances or bonuses coded to the wrong category all year.
• Super reported but not paid: STP reports your super liability, but you still have to actually pay it by the due date. The two are separate, and the ATO can see the gap.
• Onboarding new employees incorrectly: wrong tax file number declarations or employment basis flowing into every report.

Because STP feeds the ATO live data, errors are visible almost immediately. That is a good reason to get the set-up right: our Xero Payroll guide covers the software side, and if you are unsure about your super obligations, start with the super guarantee charge.

STP Phase 3 and real-time data-matching: what is coming

You may have seen the term STP Phase 3 used online. It is worth being clear: the ATO has not legislated or formally branded a program called STP Phase 3. What the phrase describes is the clear direction of travel, payroll reporting and compliance moving to real time, backed by increasingly automated data-matching. The mechanics below are already law or already in place, whatever label gets attached to them.

The concrete change is Payday Super. From 1 July 2026, employers must pay super guarantee at the same time as wages on each payday, rather than quarterly, and must report year-to-date qualifying earnings for each employee through their STP reporting every payday. Payroll, PAYG, and super reporting effectively converge into a single real-time stream. You can read the detail on the ATO’s Payday Super pages.

The second shift is how the ATO uses that data. It now matches the payroll information you report through STP against the contribution data super funds report when money reaches an employee’s account. That lets the ATO reconcile, close to real time, whether the right super was paid to the right fund on time, and it surfaces late or short payments almost immediately rather than months later. The same live matching applies to PAYG withholding. In practice, the ATO’s systems increasingly flag discrepancies automatically, which is why some commentators describe this as an AI-driven, real-time approach to payroll compliance.

For employers, the message is simple: the margin for error is shrinking. Late super, mismapped pay items, or figures that do not reconcile will be visible to the ATO quickly, so getting your payroll set-up and payment timing right matters more than ever.

Frequently Asked Questions

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You have just landed a run of bigger jobs, revenue is climbing, and somewhere in the back of your mind a question is nagging: do I need to register for GST yet? Get the timing wrong and you can end up personally out of pocket, paying the ATO 10% on sales you never charged GST on, plus penalties.

Most business owners we meet either register too late and cop a nasty bill, or register too early and take on paperwork they did not need. Neither is fatal, but both are avoidable.

This guide explains exactly when you have to register for GST in Australia, when it is worth doing voluntarily, how to register, and what changes the day you do. It is written for established Melbourne business owners who want to get this right and move on.

What is GST registration, in plain English?

GST (Goods and Services Tax) is a flat 10% tax on most goods and services sold in Australia. When your business is registered for GST, you add 10% to your prices, collect it from your customers, and pass it on to the ATO through your Business Activity Statement (BAS). In return, you can claim back the GST you pay on your own business purchases; these are called GST credits.

Registration is what switches all of this on. Until you are registered, you must not charge GST; once you are registered, you must. That is why the timing matters so much.

The $75,000 GST registration threshold

The core rule is simple. You must register for GST when your business’s GST turnover reaches $75,000 or more in a 12-month period. Turnover here means your gross income from sales, not your profit, and before expenses.

Critically, the test is forward-looking as well as backward-looking. You have to register if either of these is true:

• Your current GST turnover, this month plus the previous 11 months, is $75,000 or more; or
• Your projected GST turnover, this month plus the next 11 months, is likely to be $75,000 or more.

That projected test catches a lot of growing businesses. If you sign a contract or win work that you know will push you over $75,000 in the coming year, the obligation to register is triggered then, not at the end of the financial year.

A few important variations on the threshold:

• Non-profit organisations have a higher threshold of $150,000.
• Taxi, limousine and ride-sourcing drivers (including rideshare) must register for GST regardless of turnover; there is no threshold at all.
• If you want to claim fuel tax credits, you must be registered for GST.

You have 21 days: do not sit on it

Once you become aware that your turnover has reached, or will reach, the threshold, you have 21 days to register. Miss that window and the ATO can require you to pay GST on all the sales you made from the date you should have registered, even though you never charged your customers that 10%. On $200,000 of sales, that is roughly $18,000 coming straight out of your margin, plus potential penalties and interest.

This is the single most expensive GST mistake we see. It is entirely preventable with a bit of forward planning and someone keeping an eye on your rolling turnover.

Should you register for GST voluntarily?

If your turnover is under $75,000 you can still choose to register. Whether you should comes down to who your customers are and what you buy.

When voluntary registration makes sense

• Your customers are other businesses. They claim back the GST you charge, so your 10% is not a real cost to them, and you get to claim GST credits on your own purchases.
• You have significant start-up or equipment costs. Registering lets you claim back the GST on those purchases, which can be a meaningful cash refund early on.
• You are close to the threshold anyway. Registering early avoids the scramble, and the risk of blowing past $75,000 without noticing.

When it is usually not worth it

• You sell mostly to consumers (the general public), who cannot claim the GST back, so adding 10% either makes you dearer than competitors or eats your margin.
• You want to keep BAS paperwork and cash-flow management to a minimum while you are small.

How to register for GST

You need an Australian Business Number (ABN) before you can register for GST; the two are linked. Once you have an ABN, you can register in a few ways:

• Through the ATO’s Business Portal or the ATO’s registering for GST page;
• Through the online Business Registration Service when you first apply for your ABN;
• By phoning the ATO; or
• Through your registered tax or BAS agent, the simplest option, because they confirm the right registration date and reporting cycle for you.

When you register you will also choose how often you lodge your BAS, usually quarterly for small business, though monthly and annual options exist. Getting this cycle right matters for cash flow.

What changes the day you are registered

Registration brings three ongoing obligations:

• Charge 10% GST on your taxable sales and issue tax invoices that show the GST.
• Lodge a BAS each period, reporting the GST you collected and the GST credits you are claiming.
• Pay the net GST to the ATO (or receive a refund if your credits exceed what you collected).

Coding your transactions correctly from day one keeps this clean; our guide on GST coding walks through the common traps. If you want the mechanics of the statement itself, start with what a BAS actually is and the key lodgement dates.

At registration you also choose how you will report GST. That choice is worth real money if your customers pay slowly, so read GST cash vs accruals before you accept the default.

Frequently Asked Questions

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Ask most business owners what tax rate their company pays and you will hear “25%” or “30%” with roughly equal confidence. Both answers are right, for different companies. And getting it wrong doesn’t just affect your tax bill; it changes how much of your profit you can pass to shareholders tax-effectively.

This guide is part of our complete guide to business structures in Australia.

The rule that decides which rate applies is the “base rate entity” test, and it trips up more owners than almost any other part of company tax. This guide explains the two rates, how the test works, why your mix of income matters, and how the rate flows through to franking and dividends.

The two company tax rates in Australia

Australia has two company tax rates:

• 25%: the lower rate, for companies that qualify as a “base rate entity”.
• 30%: the full rate, for every other company.

Unlike personal income tax, there are no brackets. A company pays a single flat rate on all of its taxable income: the whole question is simply which of the two rates applies to it. That is decided each year by the base rate entity test.

What is a base rate entity?

Your company qualifies for the 25% rate in a given year if it meets both of these conditions:

• Aggregated turnover under $50 million: your company’s turnover plus that of any connected or affiliated entities.
• No more than 80% “base rate entity passive income”: meaning less than 80% of your assessable income comes from passive sources.

Fail either test and the company is taxed at 30% for that year. Because it is tested annually, the same company can move between the two rates from one year to the next as its income mix changes.

The passive income test: where it gets tricky

The turnover test is easy for most small businesses to satisfy. The one that catches people out is the passive income test.

Base rate entity passive income includes things like:

• Dividends (other than non-portfolio dividends) and franking credits attached to them
• Interest income
• Rent
• Royalties
• Net capital gains

Here is the trap. A company that trades actively for most of its income is a base rate entity. But a company set up mainly to hold investments, a “bucket company” receiving trust distributions, or a company holding a rental property, can easily have more than 80% passive income, which pushes it to the 30% rate. So two companies owned by the same person can pay different rates depending entirely on what kind of income they earn.

This is why the way you use a bucket company needs to be thought through: the tax rate it pays affects the whole strategy. Our comparison of a family trust and bucket company goes deeper on this.

Why the rate affects franking and dividends

The company tax rate isn’t just about the company’s own bill: it sets the rate at which the company franks its dividends. A company that pays 25% tax generally franks dividends at 25%; one paying 30% franks at 30%.

That matters when profit is later paid out to shareholders. Franking credits pass on the tax the company has already paid, so shareholders aren’t taxed twice. A mismatch, for example, tax paid at 30% in an earlier year but dividends franked at 25% now, can leave franking credits trapped in the company. This is a genuinely fiddly area, and it is one of the reasons the rate question is worth getting right rather than guessing.

How the company rate fits your overall structure

The 25% company rate looks attractive next to the top personal marginal rate, and it is a big part of why so many business owners trade through a company. But a low company rate is only useful if the profit can then reach you, or be reinvested, efficiently. That is a structuring question, not just a rate question.

Whether a company is the right vehicle at all depends on where your business is heading, how much profit you retain versus draw, and how you want to protect assets. Our guides on company versus trust and structuring your business to build wealth work through those decisions. You can also check the current rates directly on the ATO’s company tax rate page.

Frequently Asked Questions

Your headline rate is only the starting point; proactive tax planning in Melbourne determines what you actually pay.

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Payroll tax is the tax growing businesses never see coming. You hire a few more people, your wage bill creeps up, and one day you cross a threshold you didn’t know existed, and suddenly the State Revenue Office wants a monthly return and a cheque.

Want a quick estimate first? Try our Victorian payroll tax calculator to work out your liability from your annual Victorian wages.

It is a state tax, not a federal one, so it works differently to income tax and GST, and the rules change from state to state. If you employ people in Victoria, this is the guide to knowing where you stand before a surprise assessment finds you.

Below we cover what payroll tax is, the Victorian threshold and rate for 2025-26, what counts as wages, the grouping rules that catch business owners out, and how to plan for it as you grow.

What is payroll tax?

Payroll tax is a state and territory tax on the wages an employer pays, once total wages exceed a tax-free threshold. It is self-assessed: the onus is on you to register, lodge, and pay, not on the government to chase you.

The key thing to understand is that it is levied on your total wage bill above the threshold, not just the amount over it in the way income tax brackets work. Once you are in the system, it applies to your whole taxable wages figure after the deduction. That is why crossing the threshold is a genuine cost step, and why it deserves planning rather than a shrug.

The Victorian payroll tax threshold and rate for 2025-26

For the 2025-26 financial year in Victoria, the numbers that matter are:

• Tax-free threshold: $1,000,000 in annual Australian taxable wages (equivalent to $83,333 per month). This rose from $900,000 on 1 July 2025.
• Metropolitan rate: 4.85% on wages above the threshold.
• Regional employer rate: 1.2125% for eligible regional Victorian businesses.

There is also a phase-out to be aware of. Once your Australian wages exceed $3 million, the tax-free threshold begins to reduce, and it disappears entirely once wages reach $5 million. Above $5 million, payroll tax applies to your full wage bill with no deduction. You can confirm the current figures on the State Revenue Office Victoria website.

A quick illustration: a metropolitan employer with $1.4 million in annual wages pays 4.85% on the $400,000 above the threshold, roughly $19,400 for the year. It is a real number, and it grows quickly as you add staff.

What counts as wages for payroll tax?

“Wages” is broader than the salaries in your payroll software. In Victoria, taxable wages generally include:

• Salaries, wages, commissions, bonuses and allowances
• Superannuation contributions
• The grossed-up value of fringe benefits
• Certain payments to contractors caught by the contractor provisions
• Termination payments and some directors’ fees

That contractor point is a common trap. Paying someone as a contractor does not automatically keep them out of your payroll tax calculation: the relevant contract provisions can pull those payments back in. If you rely heavily on subcontractors, this is worth reviewing carefully. Our guide on super obligations for contractors covers the related question of when contractors are treated like employees.

Grouping: the rule that catches business owners out

This is the single most misunderstood part of payroll tax. If you control more than one business, the grouping rules can force you to add all the businesses’ wages together and apply a single threshold across the whole group, not one threshold per entity.

Businesses can be grouped where there is common ownership or control, shared employees, or one entity has a controlling interest in another. For owners who run several companies or trusts, a common set-up for tax and asset-protection reasons, this can mean you cross the payroll tax threshold far earlier than you expected, because the group is assessed as one.

Grouping is precisely where your business structure and your payroll tax position collide, which is why the two should be planned together. If you are running multiple entities, our overview of business structures in Australia is a useful companion read.

Surcharges for larger employers

Victoria applies additional levies to larger employers on top of the base rate. Businesses with large national payrolls can be subject to the mental health and wellbeing surcharge and a temporary levy introduced to repay pandemic-era debt. These are aimed at bigger employers, but if your group’s national wages are climbing into the eight figures, they need to be on your radar and in your forecasts. The current thresholds and rates are published by the State Revenue Office.

How to plan for payroll tax as you grow

Payroll tax rewards the businesses that see it coming. A few practical steps:

• Forecast your wage bill. Know roughly when you will cross $1 million so it is a planned event, not a shock.
• Build it into your pricing. Once you are over the threshold, every new hire carries an extra 4.85% on their wages, so factor that into quotes and margins.
• Check your grouping position early. If you run multiple entities, confirm whether they are grouped before you assume separate thresholds.
• Register on time. You must register once you go over the monthly threshold, and late registration can mean back-payments and penalties.

This is the kind of forward-looking work a good advisor should be doing alongside your income tax planning. If payroll tax has crept up on you, or you can see it coming, it is far cheaper to plan for it now than to unwind a surprise assessment later.

Frequently Asked Questions

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