- The amount of tax you need to pay as a business depends on your taxable income. Taxable income is calculated from your assessable income minus any deductions.
- Some taxes are federal based, while other taxes are state-based.
- Learn about the taxes that you may need to pay as a small business and find out how you can pay your tax bill.
When starting a business in Australia -- whether big or small, you need to make sure that you have registered for all the required taxes.
Although most of these are dependent upon the type of business you are entering into, there are some standard taxes that must be cleared no matter what kind of business you are starting.
Some business taxes are applicable only to a few types of businesses. Taxes also vary with the size of your business.
What Is a Tax File Number (TFN)?
A Tax File Number (TFN) is a specific number issued by the Australian Taxation Office (ATO) for organizations and individuals to manage government and tax services. If you are operating a trust, company or partnership, then the business will require a separate TFN.
What Is an Australian Business Number (ABN)?
You need to have a registered ABN in order to operate as a legal business entity in Australia. An ABN will allow you to:
- Apply for GST
- Confirm the identity of your business to others
- Avoid PAYG tax on all the payments you are going to receive
- Claim GST credits
- Get energy credits
- Obtain domain name which is Australian
What Is Business Tax?
Business tax is a tax on a business income. The amount of tax you need to pay as a business depends on your taxable income. Taxable income is calculated from your assessable income minus any deductions.
How Much Tax Does a Small Business Pay in Australia?
The amount of tax you pay as a small business is dependent on whether you operate under a sole trader or company business structure and other factors. If you are a sole trader, you will be taxed as part of your personal income and the tax-free threshold still applies.
For companies, there is no tax-free threshold and you will be taxed on every dollar the company earns. The full company tax rate is 30%, but if you are a base rate entity you may be liable to pay a lower rate of 27.5%.
Small business tax concessions are available to both sole traders and companies.
What Are the Different Types of Business Tax in Australia?
There are many types of taxes that businesses need to pay in Australia. Some taxes are federal based, while other taxes are state-based.
Below are five important business taxes that you may need to pay once your business is up and running:
- Goods & Service Tax (GST)
- Pay as You Go (PAYG)
- Payroll Tax
- Fringe Benefits Tax (FBT)
- Fuel Tax Credits (FTC)
1. Goods & Service Tax (GST)
Good and services tax is the tax that is paid on all the services and goods sold in Australia. One-eleventh of the total sale price is collected from the customers by the business and is paid to ATO on its due date.
2. Pay as You Go (PAYG)
If you are an employer, then it is your responsibility to withhold the tax from all the payments you are going to make. If you are starting a business, then you must have to register with ATO as an employer. ATO is also applicable to the payments you are going to make to businesses other than yours.
3. Payroll Tax
This is a tax that applies to the wages you are paying to your employees. It is generally calculated on the total amount of payments you are paying your employees per month. This tax obligation applies to only certain kinds of businesses.
The exemption threshold is the thing on which this payroll tax depends. If the wages exceed this threshold, then you would have to pay payroll tax. This threshold varies from state to state.
4. Fringe Benefits Tax (FBT)
Every business owner provides certain kinds of benefits to its best employees. These are considered as bonuses. This non-income related bonuses might include low interest loan, paying private expenses, car parking or simply a car. It is a common reimbursement usually given by companies to win their employees.
Fringe Benefits Tax is paid on such kinds of benefits given to employees or their associates. This does not have any relation with income tax. The tax is calculated according to the fringe benefits that are provided.
5. Fuel Tax Credits (FTC)
This is a tax which is applicable to all the fuel that is used for business purposes. It is applicable to a few types of businesses which use:
- Heavy vehicles
Keep in mind that some fuels are eligible for FTC while others are not.
There are additional business taxes to the ones discussed in this article - the main ones include the Luxury Car Tax (LCT) and Wine Equalization Tax which is commonly known as WET among masses.
How to Pay Business Taxes
Once you have lodged your income tax return the ATO will then determine your taxable income (there are also some options to pay as you go to avoid a large tax bill). You have a few options to pay your business tax bill:
- Pay as You Go (PAYG) instalments - paying quarterly instalments helps you avoid paying a big tax bill after you lodge your return
- Credit card
- Pay online
Putting money aside each month is recommended to avoid having to find a large sum come tax return time. You can find more information on how to pay your taxes on the ATO's website.
If you need assistance with your business taxes or would like professional advice on your tax obligations, SavvySME can connect you with registered tax accountants in your local area.
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