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, because responsibility for the accuracy of the information you provide to the ATO rests with you. 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.

If you are a sole trader, your ABN is linked to you as an individual. If you operate your business through a company, trust, partnership or other business structure, the ABN is linked to that entity, rather than you as an individual.

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 annual turnover is less than this, you can still choose to register for GST. Keep in mind even if you choose not to, you will have to register once annual turnover reaches this threshold. You can register for GST along with your ABN application, or do so separately

Additional Taxes

Besides GST, there are a number of other taxes your business can register for if they are applicable for your business. These include: 

  • Fringe Benefits Tax (FBT);
  • Luxury Car Tax (LCT);
  • Fuel Tax Credits (FTC); and 
  • Wine Equalisation Tax (WET). 

While these taxes will not necessarily be relevant to your business, it is worth knowing that these can also be applied for 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 (e.g. purchase, sale, wage, rental, etc.); and 
  • purpose.

You must not change the information in your records and should store them securely to ensure someone cannot change or damage them. Most records must be kept for a minimum of five years.

It is important you keep adequate records for the required time because you need to be able to produce them if the ATO requests them.

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.

The ATO will automatically send you your BAS electronically when it is time to lodge, with some information on the form already completed for you. This includes:

  • the time period which it relates to;
  • your business details; and 
  • the BAS’ due date.

You then 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

PAYG Withholding

If your business employs people (regardless of whether they are employees or contractors), you need to register for pay as you go (PAYG). You can register for PAYG at the same time as you register 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 from them is based on the information they provided to you in their tax file number declaration.

Superannuation

In addition to PAYG withholding, you must also pay your staff’s superannuation guarantee (SG) into their nominated super account if you pay them $450 or more per month. The SG is currently 9.5% of an employee’s ordinary time earnings, although it is due to increase over the coming years. 

You need to pay your employees’ SG into their nominated accounts quarterly. If you fail to do so, you may be charged an SG charge by the ATO, so make sure to pay on time along with your other tax obligations.

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 the total amount your business pays 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.

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. If you have any questions about your tax responsibilities, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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