Taxes can be overwhelming for any individual or business. We created this blog post to simplify understanding the numerous details available on small business tax in Australia and help you maximise tax deductions.
Small Business Income Tax
According to the Australian Securities and Investments Commission (ASIC), a small business has 50 employees or less, an annual turnover of less than $25 million, and assets of less than $12.5 million.
The two types of income tax that exist are full company tax rate (at 30%) and lower company tax rate, also called base rate entity company tax rate (at 25%).
Goods and Services Tax (GST) for Small Businesses
Goods and services tax is quite straightforward in Australia. Both for small businesses and other business types. GST taxes follow these considerations:
- Businesses that make less than $75,000 and non-profits that earn less than $150,000 are exempt.
- Other exemptions include certain food, educational courses, medicine, health services, charitable and religious activities, etc.
- Ride-hailing services always pay GST.
- GST for most products and services is 10%.
Fringe Benefits Tax (FBT) and Small Businesses
This is paid by businesses on benefits (other than wages/salary) paid to an employer/their trustee. However, benefits primarily used for work are exempt from this tax.
Fringe benefit tax = FBT rate the grossed-up value tax base
Payroll Tax in the Small Business Context
This is known as state or territory tax paid on wages. For employers, it is calculated as a percentage of the total wages paid to employers. Only businesses that pay above the tax-free wage threshold for their state or territory pay this tax.
Capital Gains Tax (CGT) and Small Business Concessions
Capital gain is the amount earned from the sale of an investment or property, and capital gains tax is levied on that amount. In Australia, capital gains are taxed at the same rate as your income tax. This means that you will add your capital gains to your income to get a total value and pay tax on the rate the total falls into.
The only exceptions to this tax are assets received for personal use or those purchased before the tax was introduced.
How to Pay Small Business Taxes
As a small business, you can pay taxes with a credit/debit card or BPAY. The Australian Tax Office (ATO) also has a range of online support and self-service tools that can assist you in paying your tax.
Common Tax Mistakes Small Businesses Should Avoid
Making a mistake or two is expected as you familiarise yourself with the tax payment process. To prevent that from happening, here are some common mistakes to avoid:
- Wrong classification of workers in the wrong category. E.g., classifying employees as independent contractors.
- Failure to keep clear records. This can cause you to have missing or incomplete tax invoices, making it difficult to resolve any disputes.
- Failure to register for an Australian Business Number (ABN).
In Essence
An understanding of the different taxes you have to pay as a small business and how to calculate them is a step in the right direction towards maximising your tax deductions. Even better is to get a customised solution based on your business needs, as they are most familiar with the tax landscape.