As the saying goes, the only certain things in life are death and taxes. This is especially true for your business as taxes will form a major part of many business decisions you will need to make, and improper management of your taxes will likely lead to the death of your business.
Prosperity prides ourselves on providing our clients with quality accounting and taxation advice that not only meet your current goals, but also help you create enduring success. We can demonstrate the short and long term benefits of smarter investment decisions and improved business and taxation strategies.
What are the taxes I need to be aware of?
Income taxes
Income taxes are an unavoidable part of modern society, and when you start your own business, the responsibility for reporting and paying income taxes falls onto you as the business owner.
Depending on the legal structure you had adopted when starting your business, the manner in which your profits are taxed will differ. For example, a company reports and pays income tax on all its profits derived at 25% or 30%, depending on the size of your company. A trust on the other hand does not directly pay tax, but distributes all its earnings (after deductions) to its beneficiaries so that the beneficiaries would report and pay tax on those net income. A sole trader, being an individual person, includes the business income and expenses in their personal tax return paying tax on the overall business profit, while partnerships simply divide the profit between its partners who includes their share of the profit on their own tax returns.
Goods and services tax
Goods and services tax (GST) considerations are also an important aspect of any business. The law requires any business that had earned, is earning, or otherwise expected to be earning at least $75,000 of GST income annually to register, charge and report GST on all its taxable sales. This means for example your charge of $1,000 for a job will need to be billed as $1,000 + GST = $1,100, with the $100 portion being collected on behalf of the ATO and remitted on a monthly, quarterly or annual basis via your Business Activity Statements (BAS). There are a range of ‘GST-free supplies’ that you do not charge GST on, while there are also rules on what you can claim back where you’ve paid GST on your business expenses.
Employer obligations
If you are employing any staff in your business, there are a range of ‘employer obligations’ you as the businessowner must meet. These employer obligations are:
- PAYG withholding taxes – Your requirement to withhold a portion of your employees’ wages and other payments and remit to the ATO as payment of taxes “on the employee’s behalf”.
- Superannuation – Your requirement to calculate and pay 10%* (Increasing to 10.5% from 1 July 2022, and by further 0.5% each year thereafter until it reaches 12% by 1 July 2025) of your employees’ total earnings to their nominated superannuation fund account.
- Worker’s compensation insurance – In NSW, if you employ any person and pay a total wage cost of more than $7,500, you must take out worker’s compensation insurance cover.
- State payroll taxes – Each state or territory in Australia imposes a payroll tax on businesses that employs a large number of staff. While the minimum threshold varies from state to state, in NSW the minimum threshold before you become liable for payroll tax is $1.2million.
Company directors are also considered employees, requiring PAYG withholding and superannuation on any director fees paid, including to yourself. The same also applies to any contractors that are deemed to be employees under the tax and superannuation laws.
Other indirect taxes
Other types of business-related taxes you may encounter includes fringe benefits tax (FBT), capital gains tax (CGT), fuel tax credits, wine equalisation tax, luxury car tax, stamp duties and land taxes.
Tax concessions for small businesses
Despite all the different taxes imposed on businesses and business owners, the Australian government recognises that small businesses make up a key part of the economy and employs over 30% of the total workforce of Australia. Therefore to support small business owners, a range of tax and compliance concessions and reliefs are available.
The most commonly known of these are the suite of small business tax concessions which includes:
- Simplified depreciation rules including pooling
of assets and instant asset write off allowances; - Lower company tax rate (25% instead of 30%);
- Immediate deduction for prepaid expenses;
- Simplified trading stock rules;
- The small business income tax offset.
Most of these concessions are available to businesses that has a total aggregated annual turnover of below $50million.
Tax compliance timing
The Australian financial year runs from 1st of July to 30th of June in the following year. For example, when the term “FY2022” is used, it is referring to the 12 months ended 30 June 2022.
Tax returns are required to be lodged annually for each financial year, with the due date of the tax returns being 31 October as a default due date. However, where the taxpayer is fully compliant with their lodgement obligations and are lodging tax returns electronically, including lodgement via a registered tax agent, the lodgement due date will be extended as follows:
- Large and medium companies – 15th of January
- All other entities with more than $2M income – 31st March
- All other companies, trusts and individuals – 15th May
Other than tax returns, businesses may also be required to lodge Business Activity Statements (BAS) to report GST, PAYG withholding and calculate any tax instalments they may be required to pay. BAS are required to be lodged by the 21st day after the end of the month if it is required to be lodged monthly, or by the 28th day after the end of the quarter if it is required to be lodged quarterly. Businesses that choose to lodge BAS electronically via SBR-compliant software, or via a tax agent, are granted 4 weeks additional time to lodge for quarterly BAS only.
Other tax compliance obligations also exists where it is applicable to you, including FBT (21st May), superannuation (paid by 28th after each quarter), payroll taxes (generally in July each year) and others.
While all this tax compliance obligations may seem to be overwhelming at times, rest assured that the team at Prosperity is experienced in all of these areas of tax and can help you meet your tax obligations.
Prosperity also has strong capabilities in Bookkeeping and Virtual CFO Services and Preparation of financial statements and tax lodgements to help you manage your business processes to make tax compliance and reporting obligations a seamless process that will help you to make more time available to do what you do best – run your business!
With understanding of your tax obligations, we now explore asset protection and estate planning in the next topics How can I protect my family’s assets? and Do I need insurance and legal agreements?
To discuss any tax compliance concerns you may have, please contact Director of Taxation, Paula Tallon at ptallon@prosperity.com.au or Manager of Taxation, Charles Yuan at cyuan@prosperity.com.au.
