Small business tax guide

This guide explains where you need to begin and what you need to know at tax time for small businesses as well as some tips to get more money back. It will also explain what you can expect from the government in terms of tax refunds and waivers in response to the COVID-19 outbreak.

Please note that this guide will give you a general understanding of what to expect in regard to your taxes and what changes to anticipate as a result of the government's response to COVID-19. However, for more in-depth information it will link you to other relevant guides.

What are the main taxes and how do I pay them?

• GST. You need to pay 10% of your taxable goods and services. You add 10% to the cost of these goods in order to pay it.
• PAYG. These are deductions from the gross wages paid to any staff you employ.

Who needs to make PAYG instalments?

Everyone earning more than $4,000 a year from business or investments will need to make PAYG instalments. For those who are not Australian residents, this amount is $1 instead. You are only exempt if you are an Australian resident and:

• The tax payable on your latest notice of assessment is less than $1,000

• Your notional tax is less than $500

• You are entitled to the seniors and pensioners tax offset

PAYG withholding

This is money withheld from earnings paid to employees, or certain transactions with other businesses. Your personal income tax is typically withheld and when you file your personal tax return, including deductions, you may claim back a portion of the amount withheld.

Who needs to pay PAYG withholding?

You have PAYG withholding obligations if you make payments to businesses that don't quote their Australian Business Number (ABN). All business owners also have withholding obligations if they have employees or if they have entered into withholding agreements with contractors or other types of workers.

If this applies, you must register for PAYG withholding before your first payment is due.

If you are operating as a sole trader or a partnership, then money drawn from the business does not count as a wage and is therefore taxed through instalments instead.

How are taxes paid?

You pay taxes through business activity statements (BAS). When you register for an Australian business number and have registered for GST, you will automatically receive a BAS form when it's time to lodge.

• You will most likely receive a BAS four times per year, which you will need to submit quarterly
• If you do not have to register for GST, but do so anyway, then you can submit a BAS annually instead
• In special circumstances, the Australian Taxation Office (ATO) might send your BAS monthly

Simply complete the form and send it to the ATO.

You must register for GST in the following situations:

• Your business's annual income is $75,000 or more, or you think it will be
• You provide any taxi-type transport to paying customers
• You want to claim GST credits

If your annual income is under $75,000, then you do not have to register for GST, but you might want to do so anyway in order to claim GST credits.

The four BAS due dates each year are as follows:

• 28 April: Your BAS for January to March
• 28 July: Your BAS for April to June
• 28 October: Your BAS for July to September
• 28 February: Your BAS for October to December

You can lodge your BAS online through:

• myGov online services for individuals and sole traders
• A secure ATO website used to manage business tax affairs online
• SBR-enabled software

What about business income tax?

Some small businesses will also have income tax obligations where they pay a percentage of income in addition to the GST and other things on the BAS. Your obligations here will depend on the company structure and whether you are a sole trader or actually own a company.

• Sole traders. This is when you run the business. You have no business income tax obligations and your tax comes out of your personal income tax.
• Company owners. This is when you operate a company as a separate legal entity. For the 2019/2020 financial year, small business income tax rates are 27.5% and you need to pay this annually at tax time. This is separate from the BAS. To qualify as a small business, companies need to have an annual aggregate turnover of less than $50 million.

In summary:

• You must register for GST if you expect an annual income of $75,000 or more.
• If you register for GST, you will generally receive a BAS four times per year.
• Complete the BAS and send it to the ATO in order to do your taxes.
• Sole traders pay income tax as part of their personal earnings, while small business companies pay separate business income tax. This is separate from the BAS.

The instant asset tax write-off and COVID-19

The instant asset tax write-off has been raised dramatically as a response to the COVID-19 outbreak. The write-off, raised to $30,000 as of 2 April 2019 has now been raised to $150,000 in response to the pandemic. This means that businesses can instantly write off any single asset purchased from 12 March to 30 June 2020 instantly in their next tax return up to the amount of $150,000. This also applies to multiple assets purchased, as long as each individual asset costs under $150,000.

Should I DIY or use an accountant?

Generally, there are two different options:

• DIY. This may be more suitable for sole traders or for those who won't be claiming a lot of deductions or offsets. DIY accounting software makes this a lot easier and simpler than it used to be.
• Use a tax agent or accountant. This costs money but there can be a number of benefits. If you have a lot of potential offsets or deductions, it could be value for money. The accountant can help you address any tax concerns you may have or find tax breaks or offsets you might not have been aware of.

How to claim GST credits on your BAS

You enter the information on your BAS and back it up with evidence in the form of tax invoices from your suppliers. These invoices should include the following information:

• The supplier's business name and ABN
• The date of the invoice
• A brief description of the items, including quantity and price
• An indication of how much was paid in GST

What to keep in mind

If your business is struggling as a result of the COVID-19 outbreak, there's a chance that the tax breaks and refunds may not be sufficient to keep your business afloat during this time. If you think that may be the case, there are alternative options you can explore.