Business Tax Basics In Australia

2021 Tax Tips / By Tax Blogger / 23 minutes of reading

Business Tax Basics In Australia

If you own a company in Australia, it is critical for you to be aware of the tax requirements that you are responsible for. In this essay, a high-level review of the fundamentals of business taxation in Australia will be provided. In addition, we will go through several typical deductions and credits that you might be eligible to claim on your taxes. Continue reading therefore if you are searching for a concise introduction to the taxation of businesses in Australia.

When beginning a business, there are a lot of things to consider about, and one of those things is the tax situation. Businesses in Australia are required to be knowledgeable about a variety of taxes, and it can be difficult to determine what steps are necessary to comply with the applicable regulations.

This blog post will provide an outline of the various business taxes that are levied in Australia and will explain how tax returns should be filed. Make it a point to read this post in its entirety if you’re considering launching a company in Australia.

As the owner of a company in Australia, it is critical for you to have a fundamental understanding of the business tax system that applies in the country. This article will provide a general introduction to important ideas, such as taxable income, deductions, and credits. If you are familiar with the structure of the corporate tax system in Australia, you can guarantee that you are paying the appropriate amount and making the most of all the available deductions and credits.

Are you the owner of a company located in Australia? If this is the case, it is imperative that you educate yourself on the many categories of taxation to which you can be subject. This page will provide a summary of the business taxes that are most frequently encountered in Australia.

In addition to that, we will go over the process of registering for and paying these taxes. Continue reading to learn everything you need to know about the taxation of businesses in Australia, whether you’re just getting started or you’re looking for more information.

There are a lot of things that people don’t know about taxes, and a lot of the time they are reluctant to ask questions because they are embarrassed. For individuals who are just getting their feet wet in the world of business or in the world of taxes in general, this blog article is intended to provide some fundamental information regarding business taxes in Australia.

We will discuss the steps that need to be taken in order for you to submit your business taxes as well as some of the more typical deductions that are available to you. We offer the following information in the hopes that it may assist clear up any confusion and make the process of filing taxes a bit less intimidating.

Did you know that enterprises in Australia are subject to taxation on the money they make? Because of this, it is imperative for you, as the owner of a business, to maintain precise records of your profits and spending in order to appropriately report your taxable income.

In this post, we’ll present an overview of the business tax system in Australia, covering the many sorts of taxes that businesses are due for, and we’ll also discuss how businesses can reduce their tax burden. In addition to that, we will offer some suggestions for lowering the amount of taxes that your company owes.

It is essential to maintain a level of familiarity with the most recent changes to Australia’s tax rules and regulations when operating a small business in the country. Especially if you are not well-versed in the intricacies of corporate taxation, this can be a challenging endeavor to undertake.

In this article, we will provide an introduction to the taxation system that applies to businesses in Australia. This will enable you to ensure that you are complying with all of your responsibilities and making the most of all of the deductions and credits that are open to you.

It is essential to have a solid understanding of the corporate tax climate in this country. This article will provide an overview of business taxes in Australia, including details on income tax rates and deductions, among other topics.

In addition to that, we will dispel some of the more popular myths about the taxes of businesses in Australia. If you have a working knowledge of the fundamentals of business taxation in Australia, you will be able to make educated choices regarding the financial planning and operations of your company.

Continue reading then if you are unfamiliar with the taxes of businesses in Australia.

Tax Basics

Keeping track of your financial affairs and fulfilling your tax duties is an essential element of running a business, especially if you have employees. The tax regulations that apply to your company will be unique to it and will change depending on the kind of business you run, the number of employees you have, and the legal structure of your company.

The tax system is a complicated system. If you want to stay out of trouble with the law and your finances, it’s a good idea to hire an experienced accountant or outsource your tax preparation to a professional.

You will be required to register your company for tax purposes, and depending on the circumstances, you might have to pay a range of different taxes.
It’s possible that the Australian Taxation Office (ATO) or the Queensland Revenue Office will require you to make a tax payment (QRO).
You are required to submit your business activity statements (BAS).
Each year, you are required to submit your income tax return.
When it comes to your taxes, you absolutely need to keep meticulous records.
Through the use of deductions, it is possible to lower the total amount of tax that you owe.

It has never been more important to get the fundamentals right. Keeping accurate records, providing substantiation, using the appropriate account codes, correctly accounting for private use, and declaring all cash transactions are essential to assuring yourself, your tax agent, and the ATO that your tax affairs are in order. Getting the fundamentals right has never been more important.

It is imperative for small businesses to ensure that their bookkeeping and tax filings are accurate and up to date. The burden of responsibility for accurately reporting their revenue, claiming their costs, and keeping the necessary documents lies squarely on the shoulders of the proprietors of the businesses.

Make sure, when you are maintaining your records, that you:

maintain a record of your cash revenues and expenditures;
account for any personal expenses incurred as well as any use of business funds or property;
make a recording of the items for your use;
separate private costs from business expenses;
when registered for GST, maintain valid tax invoices for deductible purchases;
maintain accurate records of the stock;
Maintain sufficient documents in order to provide evidence for claims involving motor vehicles.

The Australian Taxation Office (ATO) is becoming more data-savvy, and business owners are increasing the frequency with which they contact their income and expense claims.

The ATO has strengthened its resources to better cope with the cash economy and will check for disparities in tax returns when matched against pre-fill data or business benchmarks.

Get in touch with the ATO to get any errors or mistakes corrected. If you make a voluntary disclosure, you can often anticipate a reduction in the administrative penalties and interest charges that would otherwise apply. This is because voluntary disclosures are seen to be more honest than those that are not.

Your tax agent is obligated to prepare your return with reasonable care, which means they may ask you in-depth questions about your cash flow, business performance, personal use of assets, and records. This is because they are required to use reasonable care in doing so.

Registering For Tax

Through the Australian Government’s Business Registration Service, you need to have your company tax-registered in order to avoid penalties.

Income

1. JobKeeper

Payments received from JobKeeper are considered regular income for tax purposes. On the other hand, you are eligible to make deduction claims for the wage payments that you have paid to employees, including any amounts that JobKeeper has subsidized.

Make sure that the documentation and the reports you generate are accurate. You are required to maintain this information for a period of five years following the date on which the payment was made.

2. An increase in cash flow

Verify that the amounts of the cash flow increase have been correctly received by you. Because contributions designed to enhance cash flow are not considered taxable or exempt income, there will be no obligation to pay tax on them.

The increase in cash flow is exempt from GST, and you are still eligible to claim a deduction for any PAYG withholding that you may have paid.

Consider the following scenario: you decide to give the increase in cash flow from the company to another firm (for example, making a trust distribution or paying a dividend to shareholders). If this is the case, then there may be repercussions regarding taxes for the beneficiary.

3. The COVID-19 and the payments for disasters

Throughout the course of the year, the federal government assisted a great number of companies through COVID-19 and other disaster relief programs.

Payments made by the government to businesses in order to assist them in running their operations are taxable unless a particular exemption applies. This includes help that is offered in the form of a one-time payment in full or as a series of payments over time.

The Australian Taxation Office (ATO) has issued information on the tax treatment of a variety of aid packages offered by the federal government as well as the states, territories, and local governments. You should also verify how the government taxes payments are made in response to natural disasters.

If you utilize funds from an aid payment to buy things for your company, the expenses you incur are deductible according to the standard rules. There is no impact on an item’s tax-deductibility resulting from the fact that it was purchased with money from a relief fund; this is because such expenditures are not deductible.

4. Personal services income rules

The term “personal services income” (PSI) refers to money earned primarily by one’s own efforts or skills as an individual. It typically consists of individuals working in the fields of medicine, construction, finance, and information technology, among other professions.

The PSI regulations are in place to prevent individuals from lowering or delaying their income tax liability by rerouting income earned from their services through the use of corporations, partnerships, or trusts.

You have a duty to determine if the PSI regulations are applicable to your situation or whether you are operating a personal services business (PSB). In the event that more than one person is contributing to the generation of PSI through an entity such as a firm, partnership, or trust, you will need to proceed through the stages individually for each individual contributor.

After determining that the PSI rules are applicable, you will need to assign PSI to each person who was responsible for producing the income and check that the appropriate amount of tax is being withheld.

When it comes to the PSI rules, many firms make blunders. Given the complexity of these clauses and the fact that their applicability can vary from one contract to the next, this should not come as much of a surprise.

5. Crowdfunding

The tax repercussions of participating in a crowdfunding campaign are highly variable and rely on the specifics of the arrangement, the role you play (i.e. promoter, mediator, or contributor), as well as the conditions.

The tax regulations that govern investment and financial activity that is carried out in a conventional manner (for example, purchasing goods and services, purchasing shares, and lending money) also govern investment and financial activity that is carried out in accordance with crowdfunding in the same manner.

Deductions

1. Optimise depreciation deductions

You can write off the value of your assets in a number of different ways. As a part of its COVID-19 economic stimulus programs, the federal government initiated and has extended the instant asset write-off, temporary full expensing, and backing company investment policies. Additionally, the federal government supported business investment.

The Australian Taxation Office (ATO) provides information to businesses regarding the interaction of the several tax depreciation incentives that have been created by the government to assist businesses.

A significant number of companies take advantage of the streamlined depreciation laws, which include the immediate write-off of assets and the general small business pool.

Under the terms of temporary full expensing, you are permitted to deduct the small business pool balance at the end of the income years that come to a close between October 6, 2020, and June 30, 2022. The procedures will be broken down into even more specific steps below.

Both the immediate write-off of assets and the temporary deduction of the entire amount of expenses cannot be utilized for every asset. If this occurs, the asset in question will be added to the general pool for small businesses and depreciated according to the schedule that applies, taking into account whether or not it qualifies for accelerated depreciation.

In the event that a balancing adjustment takes place in the middle of the year, the asset’s termination value is required to be subtracted from the pool.

If you buy a car for the purpose of your business, the amount of depreciation you can claim is restricted to the amount that is allotted for the business element of the car limit, which is $59,136 for the income tax year 2020–21. You are unable to make a claim for the additional cost of the car under any of the other applicable depreciation standards.

2. Instant asset write-off

The following are eligible for the instant write-off of assets:

assets that are initially used or placed suitable for use between 12 March 2020 and 30 June 2021, and assets that are purchased by the 31st of December 2020;
assets with a price tag of up to $150,000 (up from $30,000);
companies whose combined annual sales are less than $500 million (up from $50 million).

The instant asset write-off is able to be utilized for many assets provided that the cost of each individual asset is lower than the application level. Additionally, both new and used assets are eligible for utilization with this write-off.

3. Temporary full expensing

Businesses that are qualified and have a combined annual revenue of less than $5 billion are able to immediately deduct the business portion of the cost of new depreciating assets that are eligible (and not excluded assets).

The eligible assets have to be first possessed and first used or installed ready to use for a taxable purpose between 7.30 pm AEDT on October 6, 2020, and June 30, 2022.

Additionally, businesses are able to immediately deduct the business portion of the cost of improvements made to eligible depreciating assets (as well as assets purchased before 7.30 pm AEDT on 6 October 2020 that would otherwise be eligible assets) if the expenses of these improvements are incurred between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.

If you are not making use of the simplified depreciation rules, you have the option of opting out of temporary full expensing for an income year on an asset-by-asset basis.

If you run a small company and decide to take advantage of the simplified depreciation standards, you will need to implement the temporary full expensing regulations while making a few adjustments to them. This includes the ability to deduct the remaining balance of your small company pool at the end of a revenue year that ends between the 6th of October 2020 and the 30th of June 2022.

4. Benefits for staff members

If you want to bring spending into the 2020–21 year and pay staff incentives, make sure they are measured and documented in a resolution that has been appropriately authorized (e.g. in board minutes).

This must to be taken care of before the end of the year in order for a deduction to be made for employee bonuses, even in cases where the amounts in question are not paid out or credited until the following year.

5. Trading stock

The value of the trading stock held by most small businesses does not fluctuate by more than $5,000 over the course of a year, which enables these businesses to take advantage of the more lenient trading stock laws.

However, COVID-19 had an impact on sales during the previous year. As a direct result of this, the quantities of inventory held by some enterprises were dramatically decreased, and the market selling value or replacement value basis may have become more tax efficient.

In situations when COVID-19 has considerably decreased the market value of trading stock below its cost, such as in the case of outmoded stock, this may result in your closing stock being valued at an amount that is less than cost, which will create an allowed deduction.

6. Write off bad debts

When certain criteria are satisfied, businesses are eligible to make a claim for a deduction related to bad debts. The debtor cannot be located, the debtor is in the process of liquidation or receivership, there are not enough funds or assets to satisfy the debt, or there is a small or nonexistent chance that the debt will be recouped are some examples of situations in which debt may not be recouped.

If the debt is still outstanding at the time it is written off, then you will be eligible for a deduction. If the debt is settled for less than what was owed or forgiven before it is recorded in the books as delinquent, there will be no deduction available.

When the debtor is a company or a trust instead of an individual, there is an additional set of criteria that must be satisfied. In addition, private corporations that have debts tied to shareholders or an associate of a shareholder are subject to a different set of regulations than public companies.

Help With Your Tax

1. Seek an experienced tax advisor

Consult the Australian Tax Office or a tax specialist for advice regarding your taxes. The ATO is responsible for the administration of Australia’s tax laws and ensures that these rules are followed by all types of businesses.

If you want to keep the costs of running your business down, you might be tempted to handle the company’s taxes on your own. However, doing so can be problematic. It may be in your best interest to hire an accountant or outsource your tax preparation to a professional in order to ensure that everything runs smoothly and to reduce the likelihood of incurring any financial penalties.

They are able to discuss several tax considerations, including the following:

legal structure and the need for a tax file number (for businesses other than sole traders)
payroll tax;
goods and services tax (GST)
business activity stream (BAS)
Australian business number (ABN)
fringe benefits tax (FBT)
pay as you go (PAYG)—withholding and instalments
superannuation.

2. Check that your adviser is legitimate

Agents who provide professional tax or BAS services are required to register with the Tax Practitioners Board.
Financial advisers are required to have an Australian Financial Services Licence in addition to being registered with the financial advisers register maintained by the Australian Securities and Investments Commission (ASIC).

Taxes If You Employ People

When paying employees, as an employer, you are required to be aware of your tax obligations, which may include PAYG withholding tax and superannuation. In addition to that, you might also have to pay payroll tax if your company is large enough, but that depends on how many people you employ.

The ATO offers tax information to employers concerning the payment of personnel, including the following:

tax rates
paying superannuation
employee termination payments
redundancy pay
paying contractors
forms, calculators and tools to ensure you withhold the correct amount of tax.

Payroll Tax

Legal information

In Queensland, your business becomes liable for payroll tax once your wage bill reaches $1.3 million a year (current 2019–20 threshold). If you employ people and pay taxable wages in Queensland. you must register for payroll tax within seven days after the end of the month when you:

pay more than $25,000 a week in Australian taxable wages
Become a group member that pays more than $25,000 a week in Australian taxable wages.

You are required to register even if you believe that the amount of Australian taxable wages you will pay out in a given year will be less than $1.3 million.

Payroll tax is imposed by each state and territory, not the ATO.

Tax Payable

1. Company tax rate

In the fiscal year 2020–21, the majority of businesses that have an aggregated yearly turnover of less than $50 million will be subject to a tax rate of 26%. However, the thirty percent tax bracket will still be applicable to certain businesses with annual revenues of less than fifty million dollars. This will be the case in particular for businesses that derive almost all of their revenue from passive assets, such as rent or interest payments.

The existence of these multiple rates results in a number of complications for businesses.

To qualify for the lower (base rate entity) tax rate:

a company must have an aggregated turnover of less than $50 million, where aggregated turnover is the sum of the company’s ordinary income and the ordinary income of any connected affiliate or entity, and
no more than 80 per cent of their assessable income is base rate entity passive income.

Companies that do not qualify for the lower company tax rate are subject to the standard company tax rate of 30%. This rate applies to all companies.

Alterations to the franking regulations, which in turn influence the distribution of franking credits, have been made in tandem with the modifications that have been made to the corporate tax rates.

2. Loss carry-back tax offset

Companies that qualify and have a taxable loss are entitled to make a claim for the loss carry-back tax offset.

Specifically, qualifying businesses that find themselves in a position where they would incur taxable losses as a result of the instant asset write off or temporary full expensing regulations may be able to employ the loss carry-back tax offset rather than carrying over the losses to subsequent years.

The offset effectively indicates the amount of tax that a company that is eligible for the offset would save if it were able to deduct the loss in the earlier year using the tax rate that applied to the loss year.

Due to the fact that it is a refundable tax offset, it may result in a cash refund, a reduction in the amount of tax that is owed, or a reduction of a debt owed to the ATO. In addition, in order to make a claim for the offset, the qualified entity does not have to make any changes to the prior tax years.

The amount of the tax offset that can be claimed cannot exceed the surplus in your franking account on the final day of the income year that you are claiming it for. The ATO is going to check franking accounts to make certain that the offset is claimed in the appropriate manner.

3. Losses

When the performance of an organization shifts, the company may find itself in a position where it must report a taxable loss or look to utilise losses from a preceding year.

Depending on the form of the company, a variety of different loss criteria apply. For instance, partnerships will split the loss among the partners in proportion to their ownership stake, whereas trust losses cannot be passed on to the beneficiaries of the trust.

Companies are subject to regulations such as those requiring the same type of majority ownership and control, the same type of business, or a similar type of business.

On topics such as the loss tests, the loss carry-back tax offset, the effect of capital injections on continuity of ownership tests, and unrealized losses from changes in asset prices, we strongly advise that you seek the counsel of a qualified professional.

4. CGT concessions

In addition to the CGT concessions that are available to a wider audience, particular concessions in the following areas are available to small businesses:

15 year-exemption
restructure rollover
50 per cent active asset reduction
rollover
retirement exemption.

You are allowed to claim as many tax breaks as you are qualified for up until the point where the net gain on the investment is zero. There are specific guidelines that dictate the order in which you must use the concessions, as well as any capital losses from the current or previous year, in order to qualify for the CGT discount.

Because the laws are difficult to understand and because making a mistake may be expensive, we recommend that you seek counsel before reorganizing or getting rid of assets and that you make sure your business structure is tailored to take advantage of any concessions that are available.

5. PAYG instalment indexation suspended

The indexation of PAYG and GST instalment amounts for small businesses was paused by the government in the fiscal year 2020–21, and the ATO permitted taxpayers to change the amount of their quarterly payments without incurring a penalty.

Some companies that cut the number of their quarterly tax payments during the year may end up with a tax bill that is bigger than they had anticipated. The Australian Taxation Office provides assistance in the form of multiple payment arrangements.

Superannuation Guarantee Obligations

If you are an employer, you have the option of either paying a predetermined minimum amount of superannuation to each of your qualified workers or making a payment to the ATO.

When paying superannuation guarantee contributions to super funds on behalf of employees, you are required to use SuperStream. As a result, compliance with SuperStream should be a requirement for all companies.

Utilize the Small Business Superannuation Clearing House, which is a free online superannuation payments service that assists small businesses in meeting their superannuation requirements. If you have 19 employees or fewer, you are eligible to use this service.

Record Keeping For Tax

Legal information

When you run a business, you are required by law to keep certain documents to explain your financial activities to the government for tax purposes. All of the documents that are utilized in the process of determining your revenue and expenses ought to be included in these records. Your accountant will be able to guide you through the process of establishing a reliable record-keeping system.

You have a legal obligation to maintain the following records for a period of five years:

receipts for various supplies, such as receipts for

-records of supplies

-cash register (till) tapes/totals

-deposit books and bank statements

acquisition costs, in addition to other costs, including

-expense payment records

-invoices and statements for acquisitions

-receipts from small cash acquisitions

-cheque butts

-logbooks for car expenses

records related to wages, including

-worker payment records

-employment declarations

-PAYG withholding

-employers’ payment book and superannuation records.

You are required to keep other receipts for supplies, such as credit card dockets (merchant’s copy) and cash register tapes, for one month if they are reconciled with actual sales and for five years if they are not reconciled. If you do not reconcile your receipts, the one-month requirement does not apply.

Utilize the evaluation tool for record-keeping provided by the ATO to determine what records you are required to retain and how you may enhance your record-keeping.

A tax preparer or accountant can also assist you in organizing your record-keeping method.

Tax FAQs

1. When does the beginning of the fiscal year occur, and when does it end?

The beginning of the fiscal year is on July 1 and the end of it is on June 30.

2. What is the final day by which an individual must file their income tax return?

The 31st of October following the close of the tax year is the day by which Australians are required to submit their tax returns. If the 31st of October falls on a weekend, the due date will be moved to the first day of the following week which is a business day. If, on the other hand, a registered agent files the return, then it is possible to file the return after October 31st.

3. If a tax return is not filed by the deadline, what are the repercussions that will occur?

The late lodgement penalty starts at $180 for the first 28 days after the lodgement date and escalates by $180 for each consecutive 28 day period, up to a maximum of $900. In severe cases, the prosecution is also included in the late lodgement penalty.