If you are starting a small business in Australia, it is
important to understand the rules and tax rates that apply. If you make
a profit from an Australian business, you are most likely going to have
to pay some tax.
This can depend on the type of business you intend to operate, whether you employ people, and how you structure your business. This can be as a Sole Trader, Partnership, Trust or a Company.
If you are a Sole Trader, you will be taxed based on your personal
If it is a company, it is more complex. The company pays it’s own tax, which is treated separately from the owner’s personal income.
If the business is set up as a partnership, this means that more than 1
person is in control.
A trust is when the business is managed and controlled by someone else, for you.
You should consider each option carefully before commencing a business, as it is difficult to change and can have major financial implications depending on which option is chosen.
ABN holders and small business owners can click through to our page which explains the online tax return process. From there, its easy to follow the steps to lodge your tax online now.
GST may also be applicable. This is a tax of 10% on most goods and
services traded in Australia.
If your turnover exceeds a certain amount each year, you are required to register for GST. Some industries require you to be registered for GST regardless of your income level (such as a Taxi Driver).
When sending the GST to the ATO each quarter, you must complete and
lodge a Business Activity Statement (Known as a BAS)
The first thing a business owner needs is a TFN – A Tax File number. You will also need an ABN (Australian Business Number).
You may be able to claim money you spend on your business as a tax deduction, which may reduce your taxable income amount. These can include expenses such as rent, telephone and internet costs, cost of tool and equipment, bank fees, transport, and motor vehicle expenses. You must report all of your income in your annual tax return.
If your business employs people, it is important to make sure that the correct amount is deducted from their pay for tax. This is sent to the ATO each quarter, usually when you pay your GST. This is your PAYG withholding amount. At the end of the year, you should provide your employees with a payment summary.
You may also have to register for and pay FBT – Fringe Benefits Tax. This is tax an employer pays, for benefits provided to employees such as a motor vehicle or phone, that they can use for private purposes outside of work.
Contact us to discuss the best structure for your business, whether a Sole Trader, Company, partnership or trust it is important to set it up properly from day one, to make sure you pay the least amount of tax for your business activity.
We can help you decide on the most appropriate business structure for your activities. It is beneficial to talk to a qualified accountant before setting up a business as it can have major implications on the end result of your tax assessment. Feel free to get in touch to discuss your small business structure, the tax implications and what you can do to ensure you have the right set up for your particular situation.
Visit our How It Works page and follow the steps to lodge your tax online now.
Tax Deductions Available For Small Business Offsets
Watch this video for an explanation on how the ATO assess offset deductions for small businesses.
Small Business Corporation Definition
Watch this video for an explanation on how the ATO define a small business and how they are taxed.