Do you understand your business tax obligations?
Find out the 5 most common Australian government taxes that may apply to your business
When it comes to starting a new business you need to determine your tax obligations and what registrations apply to your business to ensure you’re complying with all relevant regulations. Your business’s tax requirements will vary according to the type of business you run and the number of employees you have.
In Australia you should consult the Australian Taxation Office (ATO) to determine your obligations. If you’re outside of Australia you should consult the relevant tax department in your country. You will also need to determine if you need a Tax File Number (TFN) in Australia.
You should also seek advice and ongoing compliance support from a qualified professional such as a tax accountant.
Some taxes such as payroll tax may differ from state to state and territory. You should start with relevant small business sites in your state or territory to learn about your local tax requirements. A list of small business sites in Australia and New Zealand can be found here.
In the meantime here are the top 5 most common Australian government taxes that may apply to your business:
1. Goods and services tax (GST)
GST is a broad-based tax of 10% imposed on most goods, services and other items sold in Australia. Depending on your turnover or service, you may need to register for GST. If your annual turnover is more than $75,000 (at the time of writing) or more, you’re required to pay GST. Find out more from the ATO.
2. Income and Payroll Tax
Income tax is determined based on the taxable income of the person or business.
What you need to report and how you lodge the annual income tax return for your business depends on your type of business entity. As a business owner you may also be required to pay and lodge an individual tax return. You can find out more from the ATO.
Payroll tax may also apply to your business. It is a state tax calculated on wages paid, or payable, by employers and applies in all Australian states and territories.
These wages include salaries, allowances, director’s fees, super, the grossed-up value of fringe benefits and employers are required to self-assess their liability on a monthly basis, with an annual adjustment reconciliation performed at the end of the financial year.
Employers with an expected payroll above $550,000 per year (as at the time of writing) should check registration requirements and payroll tax rates in their state.
Pay as you go (PAYG) is a system you may need to use when managing and paying tax liabilities on a regular basis.
Under PAYG withholding rules, you have an obligation to collect tax from payments you make to employees and some businesses so they can meet their end-of-year tax liabilities.
You’ll have withholding obligations if any of the following apply:
- you have employees
- you have other workers, such as contractors, and you enter into voluntary agreements to withhold amounts from your payments to them
- you make payments to businesses that don’t quote their Australian business number (ABN).
You may also be required to pay PAYG instalments for any business income or investment tax obligations.
3. Fringe benefits tax (FBT)
If you (or a person on your behalf) provide certain benefits to your employees or to people associated with your employees in place of salary or wages, you may be liable for FBT. Find out more about FBT here.
4. Capital Gains Tax (CGT)
A capital gain or capital loss on an asset is the difference between what it cost you and what you receive when you dispose of it.
You pay tax on your capital gains. It forms part of your income tax and is not considered a separate tax – though it’s referred to as capital gains tax (CGT). Find out more here.
5. Excise duty
Excise is a commodity-based tax on alcohol, tobacco, fuel and petroleum products.
If you produce, store or manufacture these goods in Australia you need to have an excise licence and may need to pay excise duty. They’re called ‘excisable goods’. If you import these goods, instead of paying excise duty you generally pay an equivalent customs duty. Imports are called ‘excise equivalent goods’. Find out more here.
** The above list is only a selection of some taxes that may apply to you. You should consult the Australian Taxation Office (ATO) to determine your tax obligations. If you’re outside of Australia you should consult the relevant tax department in your country. You should also check your state or territory for additional local taxes such as payroll tax. You should also seek advice and ongoing compliance support from a qualified professional such as a tax accountant.**
Don’t forget to check what your recordkeeping requirements are. Typically this may include (but is not limited to) retaining receipts, log books, bank statements, invoices, way records, deposit books, expense payment records. Use the Australian Taxation Office’s (ATO) record-keeping evaluation tool to work out what you need to keep, and how to improve your record keeping.
Don’t forget to check out our 5 Steps to Starting a Business.