Franchise Tax Australia: Definition, Rates, Exemptions & Example (2025 Guide)

Franchise tax is a term that pops up in conversations about business structures and state-based taxes—but what does it mean in Australia, and how does it impact local businesses? With the 2025 financial year bringing new thresholds and updates, it’s crucial for entrepreneurs and franchisees to stay on top of their tax obligations. Here’s your comprehensive guide to franchise tax: what it is, how it works, who’s exempt, and what to expect in the year ahead.

What Is Franchise Tax? The Australian Context

In many countries, a franchise tax is a levy imposed on businesses for the privilege of operating in a particular jurisdiction, separate from income tax. In Australia, while there’s no federal ‘franchise tax’ per se, the term is used in two main contexts:

• State-Based Levies: Some states impose taxes or duties on certain types of franchises or business operations, particularly in sectors like gaming, liquor, and motor vehicles.

• Franchise-Specific Fees: Franchisees pay royalties and upfront fees to franchisors, which are subject to GST and income tax—often loosely referred to as ‘franchise tax’ within industry circles.

For most business owners, the key tax obligations linked to franchising include:

• GST on franchise fees and royalties

• Income tax on business profits

• Payroll tax (if wage thresholds are exceeded)

• Stamp duty or state-based levies in specific industries or locations

2025 Franchise Tax Rates and Key Updates

The 2025 financial year brings several updates that franchisees and franchisors should note:

• GST remains at 10% on all franchise fees and royalties.

• Income tax rates for small business entities (aggregated turnover under $10 million) remain at 25%.

• Payroll tax thresholds have increased in some states. For example, in NSW, the threshold is now $1.2 million, while Victoria’s is $700,000. Rates vary between 4.85% and 6.85% depending on the state.

• Stamp duty on franchise agreements has been abolished in most states, but still applies in specific cases (e.g., transfer of motor dealer franchises in WA).

It’s also worth noting that the Franchising Code of Conduct remains a core compliance requirement, with penalties for non-compliance updated in 2025 to a maximum of $133,200 per breach for companies.

Common Exemptions and Who Qualifies

Not all franchisees or franchisors pay the same taxes—here are key exemptions for 2025:

• GST Registration: Businesses with turnover under $75,000 are not required to register for GST (though many do for input credits).

• Payroll Tax: If your total Australian wages are below your state’s threshold, you’re exempt from payroll tax.

• Small Business Concessions: Small franchises may access instant asset write-off (up to $20,000 in 2025), simplified depreciation, and lower company tax rates.

• Industry-Specific Exemptions: Certain healthcare, education, and charity franchises may be exempt from some state levies or duties.

Franchise Tax in Practice: A 2025 Example

Let’s break down a practical scenario for a new franchisee in 2025:

• Business: Opens a fast-food franchise in Victoria

• Initial franchise fee: $50,000 (plus 10% GST = $55,000 total)

• Ongoing royalty: 6% of gross sales (plus GST)

• Payroll: Employs 8 staff, with total wages of $400,000 (below the $700,000 payroll tax threshold)

Tax impact:

• GST: Must be collected and remitted on all franchise fees and royalties.

• Income tax: Pays 25% company tax rate on net profits.

• Payroll tax: Not liable, as total wages are under threshold.

• Stamp duty: Not applicable on franchise agreement in Victoria.

This owner benefits from small business tax concessions and avoids payroll tax due to modest staffing, highlighting why understanding both the federal and state landscape is critical.

Conclusion: Stay Ahead of Your Franchise Tax Obligations

While Australia doesn’t have a single ‘franchise tax’, there are multiple tax touchpoints for franchisees and franchisors in 2025—from GST and income tax to payroll tax and state-specific levies. Knowing the latest rates, exemptions, and compliance rules can save you money and prevent penalties. Whether you’re considering buying a franchise or already running one, make tax planning a core part of your business strategy.