Your guide to navigating the Australian tax maze.
When starting a new business, one of the primary tasks that a business owner needs to complete is sorting out all the tax issues. There are many different types of taxes that need to be paid by an Australian business and it can become quite a challenge to stay on top of these issues.
In fact, most business owners are not qualified to handle the tax issues on their own and may need the services of a tax consultant or an accountant who can help them to navigate the complex tax maze in the right manner.
Without handling the various tax issues related to your business, you may fall into trouble with the taxation authorities and your business could suffer negative consequences. Hence, it is best to achieve a complete understanding about the different tax liabilities that your business could be eligible for and to pay all these taxes within the stipulated time frames.
What are the different types of taxes for Australian businesses?
The tax that is required to be paid on the income of a business is referred to as income tax. Depending on the business structure that you are using, such as sole proprietorship, partnership firm or limited company, your income tax returns may have to be submitted individually or through your business. For example, in a sole proprietorship, the business is not taxed separately. The income of the business passes to the sole owner and is accounted for in the owner’s income tax returns.
Capital gains tax
This type of tax is accounted for within the income tax return itself and you do not have to file a separate return for capital gains tax. This type of tax has to be paid only if you have benefitted from capital gains in any particular year. Hence, if you have sold off any business assets such as property, plant and machinery, or stocks and have made a profit from such a sale, then that profit is known as capital gains and may be liable for capital gains tax. Similarly, if your business has made a loss on the sale of any asset, then you have to account for such capital gains loss in your income tax returns too. There are various exemptions available for capital gains tax, which could cut down your tax liability considerably.
Goods and services tax (GST)
Goods and services tax has to be paid by an Australian business if their GST turnover is greater than $75000. However, if your business is involved in offering taxi services to customers or clients and you charge a fee for such a service, then your business has to pay GST even if your turnover does not exceed the specified limit. If your current GST turnover is below the limit but you expect it to cross the limit in future months, then you have the option of registering for GST and staying registered for an entire year. However, you will only have to file the GST return if your business is eligible to pay the goods and services tax. After registering for GST, you will need to add the GST component to your goods or services so that it can be recovered from the customers. If you make any business purchases and have paid GST on such purchases, then this amount can be deducted from your total GST liability.
Fringe benefit tax (FBT)
FBT is payable on all the fringe benefits that an employer may be providing to his employees. FBT is not paid on the entire fringe benefit but a certain percentage of the benefit is considered for FBT calculations. If your business requires paying FBT, you will have to first register with ATO and then file a separate FBT return along with your tax payment.
Pay as you go (PAYG) tax
PAYG tax is paid on your expected business income and income from other investments. As a company, you may not only have to pay this type of tax on your business income, but may also have to withhold pay as you go tax from your employees and pay it on their behalf. The amount of tax that you withhold will depend on the employee’s salary as well as their expected income tax liability at the end of the year. This tax is typically paid in instalments throughout the year.
Not to be confused with pay as you go tax, payroll tax is paid by business owners on the wages and salaries that they pay to their employees. However, in order to be liable for payroll tax, you need to be paying salaries that are above a certain limit as specified by the taxation authorities.
As you can see from the above, it can be quite difficult to keep track of the different types of taxes that need to be paid by Australian businesses, as well as the rates and due dates for the same. Also, you need to maintain separate records for all the different taxes so that you can explain each tax when and if the need arises. Hence, it is advisable to hire a tax specialist who will keep you abreast of your tax liabilities and help you to navigate the maze of business taxes efficiently.