How Much Tax Should Your Business Be Setting Aside in 2026?
If you run a business, this is one of the most important financial habits you can get right:
Setting aside tax — consistently, and correctly.
Because here’s what we see all the time:
Business is going well
Cash is coming in
Then… a tax bill lands and it hits hard
Not because the tax is wrong — but because the money isn’t there.
Good operators don’t get caught out by tax. They plan for it.
First Things First: Tax Isn’t Your Money
This is the mindset shift.
When your business earns income:
Not all of that money is yours to spend
A portion belongs to the ATO
If you treat all revenue as “available cash”, you’ll almost always run into trouble.
The goal is simple: separate business profit from tax early.
The Core Rule for Business Owners
As a starting point:
👉 Set aside 25%–30% of your net profit for tax
This generally covers:
Income tax (company or individual level)
Medicare levy (if applicable)
A buffer for safety
But — and this is important —
👉 This is a guide, not a fixed rule
Your actual % depends on:
Your structure
Your profit level
Whether you’re taking money out of the business
If You’re a Sole Trader
You’re taxed personally on all profits.
That means:
Higher profits = higher tax rates
👉 Practical guide:
Lower profit → ~25%
Mid to higher profit → 30%–35%
Sole traders should generally be more conservative.
If You’re Running a Company
Companies are taxed differently:
Flat tax rate at the company level
But additional tax may apply when profits are paid to you personally
👉 Practical guide:
Start with ~25% of profit set aside
Adjust depending on how you extract profits
Key point:
Just because company tax is lower doesn’t mean your total tax is.
Don’t Ignore GST (This Is Where Many Get Burnt)
If your business is GST registered:
👉 1/11th of your revenue is not yours
A very simple system:
Set aside 10% of all income received into a GST account
Or better:
Move GST immediately when payments hit your account
If you mix GST with your working cash, it will get spent.
The System That Actually Works
The best business owners don’t rely on willpower — they use systems.
👉 Set up 2 separate accounts:
Tax account (income tax)
GST account
Then every time money comes in:
Move your % immediately
Example:
$11,000 received
→ $1,000 to GST
→ $2,500–$3,000 to tax
→ The rest is yours to operate the business
This creates clarity instantly.
Profit ≠ Cash (And Why This Matters)
One of the biggest traps:
👉 You can be profitable… and still run out of cash
Why?
Loan repayments
Asset purchases
Drawings
Timing differences
So even if your profit looks strong:
You still need to physically set cash aside
Tax is paid in cash — not accounting profit.
Adjust as Your Business Grows
What worked last year may not work this year.
As your business grows:
Your tax rate may increase
Your structure may change
Your drawings/dividends may increase
👉 Best practice:
Review your tax position quarterly
Adjust your % as needed
The earlier you adjust, the easier it is.
What About PAYG Instalments?
If you’re on PAYG instalments:
You’re already prepaying some tax
That’s helpful — but:
It’s often not perfectly accurate
It may be based on last year
👉 You should still:
Set aside tax independently
Treat instalments as part of your total obligation
Common Business Owner Mistakes
❌ Spending all available cash
❌ Ignoring GST until BAS is due
❌ Assuming “I’ll deal with it later”
❌ Not increasing tax % as profits grow
❌ Relying purely on bank balance
These are the habits that create tax stress.
A Better Way to Think About It
Instead of asking:
❌ “How much tax will I owe?”
Start asking:
✅ “How much of this money isn’t mine?”
That shift alone changes behaviour — and results.
Final Thoughts
If you run a business, tax should never be a surprise.
With the right system:
You always know where you stand
Your obligations are covered
Your cashflow stays under control
It’s not about over-saving — it’s about being prepared.
Want Clarity on Your Numbers?
Every business is different — and getting your tax set-aside right can have a big impact on both your cashflow and stress levels.
We help business owners:
Estimate their real tax position
Set practical systems for managing it
Stay ahead of obligations year-round
Reach out if you want a clear plan for your business this year.