The most expensive tax decisions in a new business get made before the first invoice goes out. Your structure, your registrations and the share of every payment you hold back are all set in the first few weeks, and unwinding them later costs money you would rather put into the business. Here is what applies in the 2026-27 financial year, in the order it starts to matter.
What are the tax implications of starting a new business in Australia?
Starting a new business in Australia creates four obligations: income tax on your profit, GST once turnover reaches $75,000, PAYG withholding and superannuation if you hire anyone, and records the Australian Taxation Office (ATO) can inspect. Your structure sets the rate you pay. Sole traders are taxed at personal marginal rates, while most small companies pay 25%.
Two ideas sit underneath it all. You are taxed on profit, not revenue. And a slice of what lands in your account belongs to the ATO from the moment you earn it.
Your structure sets the tax rate before you earn a dollar.
This is the first decision and the hardest one to reverse.
| Structure | How profit is taxed | Who carries the liability | Usually suits |
| Sole trader | Added to your personal income, taxed at marginal rates from 15% above $18,200 up to 45%, plus the Medicare levy | You personally, with no limit | Solo operators testing an idea |
| Partnership | Split under the partnership agreement and taxed in each partner’s own return | Each partner, jointly and severally | Two or more people sharing profit and risk |
| Company | 25% for a base rate entity, meaning turnover under $50 million and no more than 80% passive income; otherwise 30% | The company, with legal duties on directors | Businesses reinvesting profit or carrying real risk |
| Trust | Distributed to beneficiaries and taxed at their rates, with undistributed income taxed at the top rate | The trustee, often a company | Family groups splitting income or holding assets |
The 25% company rate looks like a discount until you take the money out. Profit still has to reach you as a wage or a franked dividend, and the top-up tax then brings you back toward your personal rate. If you need every dollar to live on, a company defers tax rather than reducing it. It earns its keep when profit stays in the business. And a loan from your own company to yourself is not free money: Division 7A can treat it as an unfranked dividend if it is not documented and repaid on the ATO’s terms.
Most people start as sole traders because it is quick and cheap, and for a side business under $50,000, that is often the right call. The tax obligations of working for yourself are lighter at that scale. Moving later has a cost, though: shifting the business into a new entity can trigger capital gains tax (CGT) and duty, and the small business restructure rollover comes with conditions. Choose for where you expect to be in three years, not three months.
When does a new business have to register for GST?
A business must register for GST once its GST turnover reaches $75,000 in any 12-month period, or as soon as it expects to reach that figure. Taxi and rideshare drivers register from their first dollar. Registration means adding 10% to taxable sales, lodging a Business Activity Statement (BAS), and claiming GST credits on business purchases.
The forward-looking test surprises people. Sign a $90,000 contract in month two, and you register then, not at year-end when the money arrives. Register late, and the ATO can backdate you, leaving you to pay 10% out of your own pocket on sales where you never charged it.
Registering voluntarily can still be worth it if you sell mainly to other GST-registered businesses, who claim the credit back anyway, or if your startup purchases are heavy. The trade-off is quarterly BAS lodgement and keeping the GST you collect out of your working capital. Big-ticket items are where the credits show up fastest, and the rules for GST on business vehicle purchases and leases are worth checking before you sign anything.
Alongside GST, you will need a tax file number, an ABN through the Australian Business Register, a business name with ASIC if you trade under anything but your own name, and PAYG withholding registration before your first employee is paid.
Hiring anyone changes your obligations straight away.
From 1 July 2026, super moves with the pay run. Under Payday Super, the 12% super guarantee is calculated on qualifying earnings and must reach the employee’s fund within seven business days of payday, replacing the quarterly cycle. A longer 20-business-day window applies to the first contribution for a new employee or a new fund. Miss the deadline, and the super guarantee charge applies, which is not deductible.
For a new employer, this is mostly a cash flow change. There is no longer a quarter’s worth of super sitting in your account, so the habit of paying super on every pay run belongs in your payroll from the first cycle.
Calling someone a contractor does not settle the question. Where a worker is paid mainly for their labour, super can still be payable, and the ATO looks at how the arrangement works rather than what the invoice says. This one accrues quietly until somebody checks.
What you can claim in your first year
Startup costs, including advice on choosing a structure and the ASIC fees to set it up, are generally deductible for small businesses in the year they are incurred.
For equipment, the $20,000 instant asset write-off became permanent from 1 July 2026 for businesses with aggregated turnover under $10 million. It applies per asset, so several purchases can each qualify. Anything at $20,000 or above goes into the small business pool and depreciates at 15% in the first year and 30% after that.
Three things trip up first-year claims:
- Ordering is not enough. A machine paid for on 28 June but still boxed on 30 June misses the year. The test is first used or installed ready for use.
- Private use has to be apportioned. A laptop used 70% for the business gives you 70% of the deduction, not the lot, and that split needs a basis you can show.
- A deduction refunds your rate, not the cost. Spend $5,000 at the 30% marginal rate, and you are roughly $1,500 better off, not $5,000. Buy the asset because the business needs it.
Every claim rests on the paperwork behind it. Receipts, logbooks and bank records are kept for five years from lodgement, and keeping records the ATO will accept is easier as a weekly habit than a reconstruction job in October.
How much tax should a new business set aside?
Set aside 25% to 30% of every payment for income tax, plus the full 10% if you are registered for GST. The ATO works out PAYG instalments from your last lodged return, so a first-year business is usually not in the system yet, and the first tax bill and the first instalments can arrive close together.
That second-year squeeze is the most common cash flow failure in a profitable new business. Year one feels comfortable because nothing is due until the return is lodged. Then the assessment arrives, the ATO enters you into quarterly instalments on that same income, and you are covering last year’s tax and this year’s prepayments together. Lodge late in the year, and the first instalment can carry a catch-up for the quarters already gone. The profit was real. The cash was spent.
You do not have to wait for that letter. Voluntary entry is open from day one, and the ATO suggests it for people new to business. Automatic entry follows a lodged return, and for a sole trader, it takes instalment income of $4,000 or more, tax payable of $1,000 or more and notional tax of at least $500. Companies enter on a notional tax of $500.
Carrying the shortfall on an ATO payment plan is a poor substitute for saving it. The general interest charge was 11.43% a year for the July to September 2026 quarter; it compounds daily, and since 1 July 2025, it is no longer deductible, so there is nothing to offset against your taxable income.
Open a second bank account on day one and move the tax and GST portion across every time you are paid. It is the least sophisticated advice here and the most useful.
Your first 30 days
- Decide the structure with an adviser before you register anything, since the ABN follows the entity.
- Register for a TFN, ABN, business name and, if you are near the threshold, GST.
- Open a separate tax account and set the transfer rule at 30% of every payment.
- Set up payroll properly if you are hiring, including Single Touch Payroll (STP) and super on each payday.
- Put the BAS and lodgement dates in a calendar you actually look at.
Work through that list this week, and get advice on the structure before you commit. If you would rather hand the compliance side over from the start, Taxology’s fixed-fee accounting and taxation packages for small businesses cover the lodgements and the questions in between.
Don’t hesitate to contact us to learn more about small business taxation.
This article is general information and does not take your circumstances into account. Rates and thresholds change, so confirm the current position with a registered tax agent before acting.