As with personal taxes, if you’re a business owner in Australia, you’ll have to file your tax return for your company’s activities for the financial year. Unlike personal taxes, however, businesses can expect to pay taxes for several categories
Read on to learn more about how your small business is going to be taxed and how to manage your obligations effectively.
Tax Obligations for Small Businesses
Company tax on profits [Assessable Income]. Australian law states that businesses that reside in the country have to pay taxes on their worldwide income. So be sure to include any international transactions you’ve had into your yearly profit calculations.
Additionally, there are two tax rates for Australian companies, and they’re calculated according to the business’ turnover threshold. Companies with an annual turnover exceeding $10 million are taxed the full business rate (30%). Meanwhile, small businesses with an annual turnover of less than $10 million are taxed at 27.5%.
Good and services tax (GST). As the name suggests, the GST is a tax that’s attached to the price tag of the goods and services your business supplies. The GST amount (a flat 10% tax) is typically added to your business’ prices and then passed on to consumers.
Your business will need to declare and pay GST if:
- Its has a turnover amount of $75,000 or more within a 12-month period
- It is a not-for-profit organisation that has a turnover amount of $150,000 or more within a 12-month period
- It provides a taxi or ride-sourcing service
Your business doesn’t have to register for a GST if:
- Its products are basic foods
- It sells healthcare products and services
- It delivers medical product and services
If you’re not sure where your company falls into these categories, get in touch with a small business tax consultant for assistance.
Employee/Fringe benefits tax. If your company affords employees with benefits (company car, gym memberships, meals etc.), then the company is obligated to pay a fringe benefits tax (FBT) on top of the employee’s salary.
The FBT owed is calculated separately from your company income tax. You’ll have to self-assess this liability based on the value of the fringe benefit itself and lodge a different return from other company taxes.
Tip: It’s possible to claim GST credits on the fringe benefits afforded to your employees; your company could put the expense down as part of its tax deductions. Consult your accountant on what your options on this are.
Payroll tax. Another tax category that your company is obliged to self-assess is payroll tax. The liability amount is determined by the value of the wages paid by the business to its employees subject to predetermined thresholds these rules are levied a the State level and differ based on where your company is located.
Your business can lodge and pay your payroll tax return at monthly, quarterly or annual intervals.
Setting Aside Funds to Pay Your Taxes
As a rule, saving 30-40% of your business quarterly income should be enough to cover your federal and state taxes. Of course, this is a generalisation; every business is run differently and, therefore, will be taxed accordingly.
If you want a granular breakdown of your tax obligations, turn to a CPA in the area or an outsourced tax return service provider. Either can help you determine whether 30-40% of your business income is a safe estimate or if you can even manage to pay less.
Budgeting and keeping an up-to-date record of your small business’ cash flow is only half the battle, however. You’ll want to use the data you have to help identify opportunities for tax offsets and pay as little of these liabilities as possible. You can also hire the services of an accountant for professional assistance on financial strategy and company growth.
