In Australia, the responsibility of administering and enforcing federally imposed taxes is borne by the Australian Taxation Office (ATO) and, in some cases, State Government Revenue Offices. The Federal Commissioner of Taxation makes decisions and issues opinions on Federal Tax Laws.
The main taxes that affect businesses are Company Tax, Capital Gains Tax (CGT), and Goods and Services Tax. All of these taxes are determined by the Australian Government.
The Financial Year for tax purposes in Australia runs from 1 July to 30 June. Businesses are required to lodge an Income Tax Return for this period. If you run your business as a sole trader you can include your business income as part of your Personal Income Tax Return.
Businesses can choose to pay their taxes monthly, quarterly, or annually. When you register for an Australian Business Number (ABN) and GST, the ATO will automatically send you a Business Activity Statement (BAS) when the time comes to lodge. All businesses registered for GST must lodge a BAS before the due date.
Further information on these key taxes and other business taxes is given below.
An Australian Resident Company is subject to Company Tax, at a rate of 25% from 2022 FY onwards If your company is a ‘base rate entity’. A Non-Resident Company is taxed on its Australian source income at the same rate as a resident company. Taxable income and tax rates may vary depending on the industry or business structure.
For more information on company tax, including company tax rates, refer to ATO: Company tax Rates.
In Australia, Income Taxes account for 67% of federal government revenue. As an employer, you must withhold income tax from your employee’s wages and salaries. You will obtain your employees’ tax file numbers in order to accurately withhold the correct amount of taxes from their pay.
For more information on income tax, including Pay as you go (PAYG) Installments and Income Tax Rates, refer to business.gov.au: Income Tax
Capital Gains Tax
Capital Gains Tax (CGT) is imposed on any capital gain generated by the sale of assets. It is deducted from your Income Tax.
CGT may apply to assets acquired and used in carrying on a business in Australia. Businesses must keep records when they acquire assets that may be subject to CGT in the future. Under certain circumstances, small businesses may also be eligible for CGT concessions.
For more information on Capital Gain Tax payable on asset disposals in Australia, refer to business.gov.au: Capital Gains Tax.
Goods and Services Tax
The Goods and Services Tax (GST) is a broad-based National Consumer Tax on the majority of goods and services sold or consumed in Australia.
The ATO requires a business to register for GST if the annual turnover exceeds $ 75,000, however, there are other requirements such as if you are an Uber Driver. Businesses that have incurred business expenses that include GST are eligible for an equivalent input tax credit. Certain businesses may also qualify for GST concessions.
For more information on GST, refer to ATO: Goods & Services Tax.
Fringe Benefits Taxes
Fringe Benefits Taxes must be paid on the majority of non-cash benefits provided by employers to their employees or their employees’ families or other associates. These taxes are usually incurred on benefits such as company cars and other expense payments.
Fringe benefits, like regular income, should be reported on the PAYG payment summary. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
For more information on GST, refer to ATO: Fringe Benefits Taxes
Dividends paid by Australian companies are taxed as income as well. Dividends paid to shareholders or employees by your company must be reported for tax purposes.
So far, we’ve talked about income taxes. Let us now discuss indirect taxes such as payroll taxes, land taxes, and customs and stamp duties.
Payroll Tax is a state tax imposed on wages paid to employees. It is calculated on the amount of wages paid per month and must be paid if total Australian wages in the relevant state or territory exceed the exemption threshold. The payroll tax exemption threshold and rate differ between states and territories.
For more information on payroll taxes and registration requirements, refer to business.gov.au: Payroll Tax.
Goods imported into Australia are subject to customs duty. Customs duty is typically around 5% of the customs value of goods, though this varies depending on the type of good imported.
The customs value of a good is determined by law, taking into account the type of good, its country of origin, and the purpose of its import into Australia.
When the relevant goods enter Australia, customs duty is payable. The specific duty rules that apply will be determined by how the goods are classified by the Australian Customs Service, and they may be amended by Tariff Concession Orders or Free Trade Agreements.
Stamp Duty is a tax imposed by states and territories on certain documents and transactions. The amount of stamp duty you must pay is based on the type and value of your transaction.
When purchasing or transferring real estate or business assets, it is critical to consider stamp duty rules on a state-by-state basis, as rates can vary significantly, and certain transactions may be eligible for concessions or exemptions.
Stamp duty is required for items such as:
- Vehicle registration and transfers
- Insurance policies
- Leases and mortgages
- Hire purchase agreements
- Property transfers (such as a business, real estate, or certain shares)
The Bottom Line
As a business owner, you want your company to operate efficiently and be profitable. A properly maintained and managed tax and accounting system is critical to achieving this. Regardless of the size or age of your company, success and growth are more likely when its mechanics are in excellent condition.
At Rands Financial Services, we provide customised taxation, accounting, and mortgage broking services to a wide range of clients including small to medium-sized businesses by understanding your individual needs.
Our experienced CPA Accountants can assist you with Cloud-Based Bookkeeping, BAS, GST, Payroll, Fringe Benefits Tax, and all other business and tax accounting matters.
Please feel free to connect with Rands Financial Services on 0434391331 or drop a message via https://randstax.com.au/contact-us and we will be happy to assist you!