Introduction: Who Pays Corporate Income Tax?
A company sends the cheque to the Australian Taxation Office (ATO). That doesn't mean the company absorbs the cost. Shareholders may see lower returns, workers may see slower wage growth, and customers may see higher prices.
In Australia, people say "company tax." This article uses corporate income tax for the broader concept. It separates three questions: who is legally responsible, how the tax is calculated, and who ultimately bears the cost.
The ATO's latest transparency data shows how much the headline rate misleads. Roughly 27% of reporting entities paid nil tax in 2024-25, according to the ATO transparency report.
Key Takeaways
- An incorporated company pays tax on its taxable income. Sole traders, partnerships and trusts are taxed differently.
- Shareholders, employees and consumers may each carry part of the economic burden.
- Statutory rates (25% or 30%) differ from effective rates after losses and offsets.
- Calculations start from taxable profit and company classification, not revenue.
Who Is Legally Responsible for Paying Company Tax?
The company is the legal taxpayer
An incorporated company, such as a Pty Ltd, is a separate legal entity. Its income and assets do not belong to its shareholders. The company pays tax on taxable income: assessable income minus allowable deductions.
That is not the same as revenue or accounting profit. Say a company has $500,000 in sales and $380,000 in allowable deductions. Taxable income is $120,000, regardless of what the accounts show after timing differences.
Different business structures are taxed differently
| Structure | Who reports the income |
|---|---|
| Company | The company, as a separate taxpayer |
| Sole trader | The owner, in their individual return |
| Partnership | The partners, on their shares of net income; the partnership itself pays no income tax |
| Trust | Generally beneficiaries on distributed income; trustees can be taxed on undistributed income |
Residency matters too. A company incorporated in Australia is resident. A foreign-incorporated company can be resident if it carries on business here and has central management and control in Australia, or Australian-resident shareholders control its voting power.
Foreign residents are generally taxed on Australian-source income.
Company tax and shareholder tax are separate
Profit is taxed in the company. A dividend then creates a separate tax consequence for the shareholder. Australia's imputation system softens this overlap.
- A resident shareholder includes the franked dividend plus its franking credit in assessable income.
- They then receive an offset equal to the credit.
- Unfranked dividends carry no credit.
- Non-residents cannot claim the franking offset, though the franked portion is exempt from withholding.
Who Ultimately Bears the Economic Burden?
Legal incidence is not economic incidence
Legal incidence falls on whoever must calculate and remit the tax. Economic incidence falls on whoever ends up with less income, lower returns or reduced purchasing power. That the company remits the tax does not prove shareholders, workers and customers bear none of it.
Shareholders
Company tax reduces profit available for dividends, reinvestment and share-price growth. Owners feel this most when they can't offset it with higher prices or lower costs.
Short-run studies tend to put more of the burden on capital, because capital can't leave quickly. Treasury's 2014 incidence analysis reaches a similar conclusion: capital bears most of the short-run burden, and more shifts to labour over time.
Employees
Lower after-tax returns can reduce investment, expansion and productivity. Over time, that can weigh on wages and hiring. The size of the effect depends on how mobile capital is, the industry and the labour market.
Evidence varies. A German municipal study found workers bear about half the burden. That is local evidence, not an Australian national split. No credible research supports the claim that employees always pay.
Consumers
A company can try to lift prices. Whether it works depends on competition, demand and substitutes.
- A dominant supplier with few alternatives can raise prices with limited loss of customers.
- A business in a crowded market that raises prices risks losing customers, so it absorbs more of the tax.
A US retail-price study illustrated this, estimating 52% consumers, 28% workers and 20% owners. It is a working paper, so treat the split as illustrative.
The burden is shared and shifts over time
Several factors move it between owners, workers and consumers:
- Ownership patterns, including foreign shareholders
- Capital mobility and international investment
- Industry structure and economic rents
- Time horizon
No single group bears all of it, and any distributional figure should be tied to a named study.
Why the Burden Varies Between Businesses
Taxable income and effective rates differ
The statutory rate is the headline rate on taxable income. The effective rate reflects what a company actually bears. Several factors can shrink or defer the final liability:
- Deductions and depreciation
- Carried-forward losses and offsets
- Exempt income and timing differences
Accounting effective rates use a different base: tax expense divided by accounting profit, not tax payable divided by revenue.
Structure and ownership
Retained earnings, dividend payouts and shareholder residence change where tax lands. Trusts and partnerships move the reporting point to individuals. A company that retains profit differs from one that pays everything out as franked dividends.
Market and international conditions
Competition, bargaining power and labour intensity shape who absorbs the cost. Multinationals face transfer-pricing rules, tax treaties and foreign income tax offsets, which can change both the amount and the location of tax.
How to Estimate Company Tax on Corporate Profit
Start with the right measure
$100,000 of revenue is not $100,000 of taxable profit. Begin with assessable income, subtract allowable expenses, and reconcile accounting profit to taxable income. Label each figure: revenue, accounting profit, taxable income, tax payable.
Apply the company tax treatment
Multiply taxable income by the applicable rate, then adjust for offsets, credits and losses. For 2026-27, the ATO's company rate guidance sets two rates:
- 25% for base rate entities: aggregated turnover below $50 million and base rate entity passive income no more than 80% of assessable income
- 30% for companies that don't qualify
Aggregation can include affiliates and connected entities, including foreign residents.
Deductions, losses and incentives
- Losses: carried forward indefinitely, subject to ownership continuity or the same or similar business test.
- R&D incentive: eligible companies under $20 million aggregated turnover get a refundable offset at the company rate plus 18.5 percentage points. Activities need registration.
- Instant asset write-off: from 1 July 2026, assets costing under $20,000 for businesses under $10 million aggregated turnover. This turnover test differs from the base rate test.
Distinguish permanent savings (such as R&D premiums) from timing differences (such as depreciation), which only defer tax.
Company tax versus total tax burden
A company tax calculation excludes GST, payroll tax, super guarantee, customs duty, and a shareholder's tax on dividends.
| Measure | Meaning |
|---|---|
| Cash tax paid | Actual payments made |
| Current tax | Payable or recoverable on the period's taxable profit |
| Income tax expense | Current plus deferred tax in profit or loss |
| Deferred tax | Future effects of temporary differences |
A $100,000 illustration (2026-27)
| Taxable income | Company type | Tax before offsets |
|---|---|---|
| $100,000 | Eligible base rate entity (25%) | $25,000 |
| $100,000 | Not eligible for lower rate (30%) | $30,000 |
This is a general illustration, not a quote or personal tax advice. Deductions, losses, concessions, residency and shareholder distributions can materially change the result.
Australian and Cross-Border Considerations
What to review
Australian and foreign-owned companies should check:
- Company residency and Australian-source income
- Whether a permanent establishment exists
- Treaty positions and foreign income tax offsets (FITO)
- Arm's-length rules for related-party dealings
An Australian-incorporated subsidiary is itself resident, so the overseas parent's position doesn't replace the subsidiary's. Foreign tax on non-assessable non-exempt branch income isn't creditable.
Treaty figures are withholding ceilings, not profit-tax rates. Under the Australia-India treaty, dividends and interest are capped at 15%, yet ordinary Australian interest withholding is 10%.
Country-by-country reporting applies mainly to groups with global income of at least A$1 billion, so not every foreign-owned company must file.
Compliance and documentation
- Keep records generally for five years.
- Small-company lodgment dates commonly fall on 28 February, though agent programs vary and payment dates can differ.
- Transfer-pricing documentation should show method, arm's-length conditions and comparables before lodgment.
- Keep evidence for deductions and incentives such as R&D.
Support for Australian businesses operating in India
VJM Global is an India-focused partner for Australian businesses. It offers accounting outsourcing, business setup, tax compliance and financial advisory support for Indian operations, and has served 250+ Australian businesses. This is a service option, not a conclusion about any company's Australian tax liability.
Frequently Asked Questions
How much corporation tax would you pay on $100,000?
It depends on whether the $100,000 is revenue or taxable profit. On $100,000 of taxable income in 2026-27, tax before offsets is $25,000 for an eligible base rate entity or $30,000 otherwise. Losses and offsets can change this.
What is the difference between corporate income tax and income tax?
Corporate income tax is assessed on a company's taxable income. Individual income tax applies to a person's income. Sole traders and partners report business income personally.
Who is exempt from corporate tax?
There is no blanket exemption. Charitable not-for-profits need ACNC registration and ATO endorsement. Some non-charitable organisations can self-assess, but not-for-profit status alone doesn't establish exemption.
Who actually bears the burden of corporate income tax?
The company is the legal taxpayer. Shareholders, workers and consumers may share the economic burden depending on competition, capital mobility, ownership and time horizon.
Do shareholders pay tax twice on company profits?
Profits are taxed in the company, then dividends are taxed for the shareholder. Franking credits let eligible resident shareholders offset that company tax, which reduces or removes the double tax.
