Having a thorough understanding of tax requirements is crucial for ensuring proper taxation of your business while avoiding penalties. Gain a comprehensive overview of the tax obligations that apply to your business, which include keeping proper records, registering for taxes, and exploring various payment options.
Tax Requirements for Your Business
Tax rules depend on your business type, employees, and the benefits you offer. You need to know about:
- Different types of tax that could apply to your business
- How to register for taxes
- How to pay taxes
- How to keep business records
Types of Taxation
Some taxes are managed by the Australian Taxation Office (ATO), while others are state-based. Here are some types of tax that might apply to your business:
Capital Gains Tax (CGT)
Capital Gains Tax applies when you sell an asset for more than you paid for it. This tax is based on the profit made from the sale.
- Who it applies to: Businesses selling assets, like property or equipment.
- How it's calculated: The profit from the sale (selling price minus purchase price and costs).
- Key deadlines: Reported annually with your income tax return.
- Reporting requirements: Keep detailed records of all asset sales and their associated costs.
- Exemptions or concessions: Small business CGT concessions can reduce or defer the tax.
Land Tax
Land Tax is charged on the value of land you own.
- Who it applies to: Property owners, including businesses.
- How it's calculated: Based on the total value of the land.
- Key deadlines: Varies by state, often annually.
- Reporting requirements: Annual returns or notices from state revenue offices.
Income Tax for Business
Businesses pay income tax on their net income (total income minus expenses).
- Who it applies to: All businesses.
- How it's calculated: Based on the business’s net income.
- Key deadlines: Annually with your income tax return.
- Reporting requirements: Detailed records of all income and expenses.
Fringe Benefits Tax (FBT)
FBT is a tax on benefits you provide to employees, like company cars or gym memberships.
- Who it applies to: Employers providing non-cash benefits.
- How it's calculated: Based on the taxable value of the benefits.
- Key deadlines: Annually, with a separate FBT return.
- Reporting requirements: Keep records of all benefits provided.
Pay As You Go (PAYG) Withholding
PAYG withholding is tax you withhold from payments you make to employees and other businesses.
- Who it applies to: Employers and businesses making certain payments.
- How it's calculated: Using ATO tax tables or rates.
- Key deadlines: Regular payments to the ATO (usually monthly or quarterly).
- Reporting requirements: Detailed records of all payments and amounts withheld.
PAYG Instalments
PAYG instalments are pre-paid income tax based on your estimated annual income.
- Who it applies to: Businesses with significant income.
- How it's calculated: Based on your last tax return or ATO estimates.
- Key deadlines: Quarterly.
- Reporting requirements: Instalment activity statements.
Goods and Services Tax (GST)
GST is a 10% tax on most goods and services sold in Australia.
- Who it applies to: Businesses with a turnover of $75,000 or more.
- How it's calculated: 10% on most sales.
- Key deadlines: Quarterly or annually.
- Reporting requirements: Business Activity Statement (BAS).
Fuel Tax Credits
Fuel tax credits give you a credit for the tax included in the price of fuel used for business activities.
- Who it applies to: Businesses using fuel for off-road activities, machinery, or heavy vehicles.
- How it's calculated: Based on the amount of eligible fuel used.
- Key deadlines: Quarterly or annually.
- Reporting requirements: BAS, with detailed records of fuel usage.
Wine Equalisation Tax
Wine equalisation tax is a tax on wine consumed in Australia.
- Who it applies to: Wine producers, wholesalers, and importers.
- How it's calculated: 29% of the wholesale value.
- Key deadlines: Quarterly or annually.
- Reporting requirements: BAS, with detailed records of wine production and sales.
Luxury Car Tax
Luxury car tax applies to cars over a certain value.
- Who it applies to: Dealers and importers of luxury cars.
- How it's calculated: 33% of the value over the luxury car tax threshold.
- Key deadlines: At the time of sale.
- Reporting requirements: BAS, with detailed records of car sales.
Payroll Tax
Payroll tax is a state-based tax on wages paid by employers.
- Who it applies to: Employers with wages above a certain threshold.
- How it's calculated: Varies by state, based on total wages paid.
- Key deadlines: Monthly or annually.
- Reporting requirements: State payroll tax returns.
Practical Examples and Scenarios
GST for a Retailer
If you own a retail business selling goods online, you must include GST in the prices for Australian customers. However, sales to overseas customers are GST-free.
PAYG Installments for Consultants
As a consultant with varying income, you pay PAYG installments based on your estimated annual income. These installments are adjusted throughout the year based on your actual earnings.
Business Structures and Their Tax Implications
Different business structures in Australia affect your tax obligations. The four common structures are:
Sole Trader
- Pros: Simple setup, complete control.
- Cons: Personal liability for business debts.
- Tax implications: Personal income tax on business profits.
Partnership
- Pros: Shared control and profits.
- Cons: Partners are personally liable for debts.
- Tax implications: Personal income tax on each partner’s share of profits.
Company
- Pros: Limited liability, separate legal entity.
- Cons: More complex reporting and regulation.
- Tax implications: Company tax rate on profits, personal tax on dividends.
Trust
- Pros: Holds property for the benefit of others.
- Cons: Complex setup and management.
- Tax implications: Varies based on the type of trust, but often taxed at the beneficiary’s rate.
Detailed Information on PAYG Withholding
Who Needs to Withhold PAYG
Employers and businesses making payments to employees, contractors, and businesses without ABNs need to withhold PAYG.
Calculation and Payment
Use ATO tax tables and calculators to determine the withholding amounts. Pay these amounts to the ATO regularly (monthly or quarterly).
Resources and Tools
The ATO provides tax tables, calculators, and guides to help you manage PAYG withholding.
Additional Tax Considerations
Payroll Tax
Payroll tax applies to employers with wages above a certain threshold. Each state has different rates and thresholds. You need to submit regular payroll tax returns to your state’s revenue office.
Fringe Benefits Tax (FBT)
FBT applies to non-cash benefits provided to employees, like company cars or gym memberships. You must keep detailed records of all benefits provided and submit an annual FBT return.
Record-Keeping Requirements
Keeping accurate and complete business records is essential. You must keep records of all transactions related to your business’s tax and superannuation affairs. These records help support your tax returns and reports, and they’re invaluable if you decide to sell your business.
Tools to Help You Get Your Tax Right
The ATO offers various tools and services for small businesses:
Lodging and Paying Your Tax to the ATO
Each year, you must submit an income tax return and, for most businesses, a business activity statement. There may be other required reports or returns.
Submit and pay your tax online – it's fast, convenient, and secure. Use an authenticated login service like AUSkey or Manage ABN Connections. Sole traders can use their myGov account linked to the ATO.