Income taxes are one of the most essential payables that you have to pay close attention to in your business. As a business owner, it is imperative that you have the basic knowledge on how you and your business is taxed. By paying the correct amount of taxes on time and by taking advantage of any tax concessions that your business may be entitled to, you may be able to save on your business expenses. In this article, we will explain what you need to know at tax time, and what you can expect from the government in terms of tax refunds and waivers.
Guide to Business Taxes
If you have a company, the key taxes affecting your business are Company Income Tax, Capital Gains Tax (CGT) and Goods and Services Tax (GST). These taxes are administered and collected by the Australian Taxation Office. You can opt to pay your business tax monthly, quarterly or annually.
This is the most significant stream of revenue in the taxation system. There are three pillars that consists income taxes: personal earnings, business earnings and capital gains. Income tax is applied to your taxable income and is paid on all form of income. This means that the salary you get from your job, the profits from your business and the returns from your investments are all taxable as income tax. It can also apply to your assets such as when you sell a house or any real estate property or stock shares.
Income Tax Rates
The Australian government adopts a progressive tax system. The higher your income is, the more income tax you pay. There is however a tax-free threshold. Individuals who are earning $18,200 and below need not pay taxes. Be wary, though, if you have two or more jobs or businesses as you may get caught in an unintentional tax trap as a result of the tax free threshold.
Above the $18,200 threshold, the tax rates are as follows (excluding the Medicare levy):
$ 18, 201 to $ 45,000 (Nil + 19% of excess over $ 18,200)
$ 45,001 to $ 120,000 ($ 5,092 + 32.5% of excess over $ 45,000)
$ 120,001 to $180,000 ($ 29, 467 + 37% of excess over $ 120,000)
$ 180,000 + ($51, 667 + 45% of excess over $ 180,000)
You also need to pay taxes on superannuation contributions and earnings.
If you own a company, your tax requirements are more involved than other business structures. Here are some taxes you can expect to pay:
1. Tax on Profit
Resident companies in Australia are subject to income taxes on their worldwide income. There are two tax rates. For small businesses with an annual turnover of less than $ 10 million, the current tax rate is 27.5%. Companies with an annual turnover of more than $ 10 million are at 30%.
2. Capital Gains Tax (CGT)
Capital Gains Tax is the tax you pay from selling company assets. This may be things like a property, a vehicle or a machine that’s used by the business. To calculate your capital gain, get the difference between the amount that was paid to acquire the asset and the value it was sold for. The amount will be included in your company’s assessable income.
It is highly advised that your company keeps records of every asset acquired since it may be subject to CGT in the future. Small businesses may be eligible for CGT concessions under certain circumstances.
3. Goods and Services Tax (GST)
GST is a national, broad-based consumer tax on most goods and services sold or consumed in Australia. It has a flat 10% rate. Your company needs to register for GST if your turnover within a 12 month period is $75, 000 or more. If the business is run by a nonprofit organization, the annual turnover threshold is at $150,000. You are also required to register for GST if you offer a taxi or ride sourcing business.
GST amount is typically added to your prices and is passed on to your consumers. Basic food and health care and medical products and services are GST free. If you’re not sure whether your goods and services need to be GST registered, ask help from a certified bookkeeper.
4. Payroll Tax
Payroll tax is a state tax on employee’s wages. It is calculated based on the amount of wages paid per month. You need to pay this if the total wages exceed the exemption threshold in the state or territory where your business is. The payroll tax exemption and rate differ between states and territories.
5. Fringe Benefits Tax
These are taxes payable by an employer for benefits that are provided to their employees outside of their salary. This is separate from your income tax and is calculated based on the value of the fringe benefit itself. ATO requires companies to self-assess FBT liabilities and to lodge a separate FBT return.
Companies can claim GST credits on the fringe benefits that you give and claim tax deductions on the cost of giving the benefits.
Lodging Your Returns
Sole Traders and Companies can lodge tax returns anytime after June 30. The absolute deadline for self-lodgment is every October 31. Although there is an option for self lodgment, it is best to get a BAS registered bookkeeper to ensure that documents like receipts and invoices are complete, everything is filled out correctly and you receive the best return in a timely manner.
Expensed incurred for work purposed during the financial year can be claimed as tax deductions. Travel expenses for work, expenses for devices like cellphones and laptops used for the business and work clothing may all be included as business expenses. It is important to make sure that back up documents for claims are ready. Claiming deductions for personal expenses are not allowed. This may lead to fines and a stressful audit by the ATO.
Sole Traders are taxed based on the income they generate for the year. Companies however have a number of key tax requirements that they are obligated to comply with. Ensuring that every document is ready for tax filing, that taxes are paid for on time and that the best possible deductions are claimed can all be very stressful for business owners.
ACT Bookkeeping Group makes understanding your tax obligations easy. Let’s talk about the specific tax requirements relevant to your business. Whether you are a small business owner or a company, we are here to help you. Contact us today!