In Short
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Small businesses in Australia must register for an Australian Business Number (ABN) and, if turnover exceeds $75,000, for Goods and Services Tax (GST).
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Employers are responsible for Pay As You Go (PAYG) withholding, ensuring correct tax deductions from employee wages.
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Staying compliant involves accurate record-keeping and timely reporting through Business Activity Statements (BAS).
Tips for Businesses
Maintain meticulous financial records and consult with tax professionals to ensure compliance with Australian tax laws. Regularly review your business structure and turnover to identify applicable tax obligations and potential benefits. Timely submission of BAS and other required forms helps avoid penalties and keeps your business in good standing.
One of the most important but difficult responsibilities of being a small business owner is keeping on top of your business’ tax obligations. While most business owners engage an accountant to help manage their tax affairs, it is important that you understand what your obligations are, as you are responsible for the accuracy of the information you provide to the ATO. This article aims to demystify tax by providing an overview of your key responsibilities as a small business owner.
Business Registration
Australian Business Number
The first step in setting up your business is registering an Australian Business Number (ABN). This is a unique number issued to you by the ATO, which helps them and other government departments, businesses and individuals identify your business. You can register an ABN online for free through the Australian Business Register.
Tax File Number
Your business must also have a tax file number (TFN). If you are a sole trader or partner in a partnership, you simply use your personal TFN. If you operate your business through a company, trust or other business structure, you will need to register a unique TFN for that entity. You can register a TFN for your business along with your ABN application or do so separately.
Goods and Services Tax
If your business has an annual turnover of $75,000 or more, you will also need to register for GST. If your annual turnover is less than this, you can still choose to register for GST. Remember that even if you choose not to, you will have to register once your annual turnover reaches this threshold. You can register for GST along with your ABN application or do so separately.
PAYG Withholding
If your business employs people (this may include contractors), you may need to register for pay as you go (PAYG) withholding. Even if your business only engages with workers as contractors, you may need to register for PAYG withholding. You can register for PAYG withholding at the same time you register for an ABN. If you already have an ABN, you can register for PAYG online through the ATO’s Business Portal.
The PAYG withholding system works by requiring you to withhold a certain amount from the payments you make to your employees. The percentage of an employee’s income that you withhold is based on the information they provided to you in their TFN declaration.
Additional Taxes
Besides those outlined above, there are a number of other taxes your business should consider and may need to register for if they are relevant. These include:
- Fringe Benefits Tax (FBT);
- Luxury Car Tax (LCT);
- Fuel Tax Credits (FTC); and
- Wine Equalisation Tax (WET).
If you need to register for any of these taxes, you can find a link through the Australian Business Register.
Record Keeping
While running your business, you must keep records of all transactions. This includes
- receipts for all sales and purchases your business makes;
- tax invoices;
- wage and salary records; and
- any other records of the sale or purchase of business assets such as land, buildings or office equipment.
The minimum information that needs to be included in the record of a transaction is its:
- date;
- amount;
- character (such as purchase, sale, wage or rental); and
- purpose.
Reporting
Based on the records you keep in accordance with the rules discussed above, you must then report your business’ income, expenses and tax obligations to the ATO through a Business Activity Statement (BAS). If your business is not registered for GST, you report your business’ tax obligations through a simpler Instalment Activity Statement (IAS).
Depending on your business’ annual turnover, you can choose to lodge a BAS either:
- monthly;
- quarterly; or
- yearly.
Most small businesses lodge their BAS quarterly. You complete the BAS by filling in the required information about sales, expenses and taxes withheld based on your records. This assists you in determining how much money you must pay to the ATO in taxes.
You may choose to engage a registered tax or BAS agent to complete your BAS for you.
This guide will help you to understand your corporate governance responsibilities, including the decision-making processes.
Superannuation
In addition to PAYG withholding, you must also pay your staff’s (this may include contractors) superannuation guarantee (SG) into their nominated super fund account. The SG for the income year ending 30 June 2025 is 11.5% of an employee’s ordinary time earnings. It will increase to 12% by the income year ending 30 June 2026.
You need to pay your employees’ SG into their nominated accounts by every quarter’s due date. If you fail to do so, you may be charged an SG charge by the ATO along with potential penalties and interests..
Payroll Tax
Payroll tax is a tax on the total amount your business pays in wages every month. Unlike other taxes, payroll tax is a state or territory-based tax, meaning that instead of paying it to the ATO, you pay it to your state or territory’s revenue office (e.g. Revenue NSW).
You only have to pay payroll tax if your business’ total in Australian wages or salary in a given month is above a certain threshold. You should visit your state or territory’s revenue office’s website to find out what the relevant threshold is. Payments to contractors (not just employees) may be included in this threshold.
Fringe Benefits Tax
Fringe benefits tax (FBT) is a tax on benefits paid to employees. Employers are responsible for paying this tax. Examples of fringe benefits you may provide to your employees include the provision of a car, a car park or paying for a gym membership.
If you provide fringe benefits to your employees (or their associates), you will need to determine your liability for FBT and then lodge an FBT return. The FBT year ends on 31 March, and returns must be lodged by 21 May.
Taxable Payments Annual Report (TPAR)
If your business provides building and construction, cleaning, courier, road freight, information technology, security, investigation or surveillance services, you must lodge a TPAR to report any payments made to contractors. A TPAR allows the ATO to data-match the payments reported to contractors in the TPAR against what contractors report in their income tax returns.
The TPAR reporting requirement exists in industries that are particular focus areas for the ATO in respect of underreporting of income by contractors and whether employment tax obligations (such as superannuation and PAYG withholding) are being complied with by the business.
Key Takeaways
If you run a small business, you must understand and meet your tax responsibilities. This includes registering your business with the relevant bodies, keeping updated records and ensuring that you pay your employees their full entitlements. Additionally, you must ensure that you are meeting your reporting obligations to avoid penalties from the ATO.
If you are registering your business for tax, our experienced taxation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1800 486 528 or visit our membership page.
Frequently Asked Questions
If you miss the deadline for submitting your BAS, you may face penalties and interest charges from the Australian Taxation Office (ATO). It’s important to submit your BAS on time to avoid these costs. In some cases, the ATO may offer payment plans if you are unable to meet your obligations.
To reduce your tax obligations, consider taking advantage of tax deductions for business-related expenses, claiming the small business tax offset, and reviewing your business structure. Consulting with a tax professional can help you identify strategies that suit your business and ensure you are optimising your tax position.
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