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If you use the standard, estimation or ratio options, you will not need to pay provisional tax during your first year of business. If you use the accounting income method (AIM), you’ll only pay provisional tax when you make a profit, even during your first year.

However, your first year in business is not tax free. Any income tax from your first year in business is usually due by 7 February the following year. If you have an agent it will be due by 7 April.

This may mean you must pay income tax for your first year in business at the same time as paying provisional tax for your second year in business.

You can choose to make voluntary payments of tax during your first year of business to help spread the cost. If you make voluntary payments you may be able to get an early payment discount.

Early payment discount 

You may be able to get an early payment discount if you meet the following criteria.

  • You are self-employed or a partner in a partnership or an owner of a look-through company and get most of your income from the business.
  • You make a voluntary income tax payment before the end of the income year or you use tax pooling funds to make payments for the income year.
  • You apply for the discount on or before the date your tax return has to be filed.
  • You do not have an obligation to pay provisional tax in the income year you make voluntary payments or for any of the 4 years before.

Early payment discount rate

From the 2025 income year the early payment discount rate is calculated using the use of money interest credit rate as at 31 March of the previous tax year plus 2%. The use of money interest credit rate as at 31 March 2024 was 4.67%.

The early payment discount rate for the 2025 income year is 6.67%. 

Past early payment discount rates
Year Discount rates
2024 6.67%
2023 4.31%

From its introduction up until the end of the 2022 income year, the early payment discount rate was fixed at 6.7%.

Self-employed people with student loans

If you're self-employed and have a student loan, you may have to make repayments in your first year of business.

Contact us to find out more.

Business - general questions

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Andrew makes voluntary payments for the year ended 31 March 2025 of $5,000. His residual income tax for 2025 is $8,000.

The early payment discount is calculated on $5,000, being the lesser of the voluntary payments made or 105% of his residual income tax amount ($8,400).

The value of the early payment discount is $333.50 being 6.67% of $5,000.

Total voluntary payments made from 1 April 2024 - 31 March 2025: $5,000.00.

2025 residual income tax: $8,000.00.

Voluntary payments of $5,000 x 6.67% = $333.50.

105% of residual income tax = $8,400.

$8,400 x 6.67% = $560.28.

Last updated: 28 Mar 2024
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