A Tax Rate Guide for Small Businesses in Australia
Being across tax obligations is essential for all small business in Australia.
Being across tax obligations is essential for all small businesses in Australia. Being well organized supports the flow of your business activities. Whether working within the structure of a Company, Trust, Partnership or Sole Trader, this tax rate guide will explain what each of the relevant obligations are.
BUSINESS ACTIVITY STATEMENTS
Business Activity Statements (BAS) are required to be submitted quarterly. Not only is this a legal requirement but it is essential if your small business is registered for GST (Goods and Services Tax). Anyone who is registered for GST must submit a BAS, inclusive of a company or any other enterprise that has an annual turnover of $75,000.
Sole Traders need to register for GST and this starts when they have met the threshold of a $75,000 turnover for the year, or when this amount is predicted to be earnt for the financial year. A not-for-profit organisation will need to register when GST its income reaches $150,000 for the year, however Business Activity Statements are not required unless requested by the ATO (Australian Tax Office).
A Business Activity Statement must be completed:
- To report and pay the GST the business has collected over the designated period.
- To claim the business’s GST credits.
Business Activity Statement due dates are:
- 28th April: BAS for January to March
- 28th July: BAS for April to June
- 28th October: BAS for July to September
- 28th February: BAS for October to December
REQUIREMENTS WHEN REGISTERING FOR GST
Before you can registering standard Goods and Services Tax (GST), you will need to have registered for an Australian Business Number (ABN). You can get an ABN when you initially register your business name or, at a later date. Your tax professional can support you with this.
You also need to:
- calculate whether your business’s sales are subject to GST and include the GST in the price of these sales. Some sales may be exempt but ask your tax professional to advise you if this is the case.
- put aside GST it is collected so it is available to pay to the ATO when due.
What percentage is GST?
As a federal tax, GST is 10% levied on most goods and services sold in Australia. Businesses should add 10% on top of the cost of goods and services in order to pay this tax.
What are GST Credits?
GST credits are refunds of GST charges that have been incurred as a business expense in relation to offering your goods or services. You must be registered for GST to claim GST Credits.
What are PAYG Obligations?
Pay As You Go (PAYG) are deductions from the gross wages paid to staff you employ. This is a withholding tax accruing from deductions from the gross wages paid to all staff, company directors and office holders, which is then paid directly to the ATO during the year.
AUSTRALIAN SMALL BUSINESS TAXES
What is a Small Business?
A business is considered a small business in Australia if it has an annual turnover of $10 million or less. Small businesses can be run under different structures including a company, trust, partnership or sole trader. All small businesses will need to pay business income tax. If the annual turnover of the business is less than $10 million, a reduced rate of 26% is paid for the 2020/21 financial year, reducing to 25% for the 2021/22 financial year rather than the full rate of 30% which is the rate applicable to companies with a larger turnover. Before this, the tax rate for small businesses in Australia had been 27.5% up to and including the 2019/20 income year. The reduced tax rates mentioned apply to companies that, together with all entities they are connected to or own, fall below the combined turnover threshold of $50 million.
Sold traders pay tax at the individual income rate, with a tax-free threshold of $18,200. This is due to this business structure being taxed as part of your own personal income. You may not need to submit a business activity statement (BAS) as you will lodge an individual tax return instead. Consulting a tax professional to confirm this is recommended.
Income Tax Obligations
Small businesses in Australia also have income tax obligations where they pay a percentage of income in addition to GST and other items on their BAS. Your obligations here will depend on the company structure and whether you are a sole trader or actually own the company.
Payroll tax may also be an obligation for your small business. This is dependent on whether the total wage bill exceeds the threshold determined by your state. Payroll tax thresholds need to be observed by sole traders as staff can be employed under this structure.
WORKING WITH YOUR ACCOUNTANT
Keeping your accounts in order, bookkeeping up to date, and accurate records when running your small business will ensure a smooth process for completing your taxes. Helping your accountant to help you is important.
Tips for working with your Accountant:
- Communicate all changes in business structure or business operations without delay.
- Record everything either on paper or electronically using a platforms such as Xero or QuickBooks.
- Ensure clear and regular communication between your bookkeeper and accountant so they are on the same page.
- Specify everything you require as early. For example, do you need only a Tax Return completed? Or are you requiring Tax Planning, Business Advisory, Structuring/Set-up Advice and Bookkeeping? A financial adviser or accountant will help identify these if you are unsure.
It is always recommended to use an accountant that understands the needs of small businesses in Australia. That way, claiming deductions and offsets can be maximised, providing value for money. A professional can help to address tax concerns and find tax breaks that are not commonly known.
CHANGES AS A RESULT OF COVID-19
Legislation is constantly changing so due to the current climate; it is wise to keep up to date with all the latest changes. If unsure, consult your trusted financial advisor or accountant. Refunds and grants are always being made available for small businesses in Australia, so it is worth discussing these options with your consultant also.
Disclaimer: the information contained in this article is for general information purposes only and in no event will SDP Tax Accountants or its affiliated entities be held liable for any loss or damage caused through the use of this information. Independent advice is recommended for all individual circumstances. Data and specifications included correct as of June 2021.