Basic tax explained for startups and small business
If you’re planning to start a business or about to start one, welcome to the world of business taxes. Here in this world, your new best friends will be called GST, BAS and PAYG.
Say hello to them:
- GST: Goods and Services Tax
- With GST comes the BAS: Business Activity Statement
- IAS: Instalment Activity Statement
- PAYG: Pay As You Go withholding and instalments
It goes without saying that one of the first things you should do when starting a business is to make sure you’re using appropriate online accounting software for your needs, as well as consulting with an experienced bookkeeper or accountant.
However, it also pays to have a basic understanding of taxation in the countries in which you operate. That’s why we’ve prepared the following explainer.
A short breakdown
GST is a tax based on the transactions you make in your business — that is, the sales and purchases. There are some GST-free sales and purchases, like that of certain overseas sales and purchases, but in general the GST is 10 percent of most of your business transactions. You need to register your business for GST if you currently earn gross sales of $75,000 or more in any 365-day period.
You can voluntarily register your business for GST if you earn less than this amount. You may want to voluntarily register if you are incurring a lot of expenses like when you are in startup mode. That way you’ll get back dollar for dollar the GST you are paying for your business purchases. This can help with the cash flow for your business.When you invoice your customers you need to charge 10 percent GST, and your invoices need to look a certain way to comply with the tax rules.
Refer to: ATO info on GST
When your business is registered for GST, it actually becomes a tax collector for the government, as the GST you collect on your sales, less the GST you paid on your purchases, has to be remitted to the government via the BAS. This needs to be completed annually, quarterly or monthly, depending on the business reporting obligations.
It’s annually if you are not required by law to register for GST and quarterly if you are required to be registered for GST (you earn Gross Sales of $75,000 or more). It’s a monthly requirement if you import goods and are required to be registered for GST by law.
Refer to: ATO info on BAS
If you employ staff, then wages tax or PAYG withholding must be deducted from the gross wages and remitted to the tax office via the BAS or IAS each quarter or month, depending on the amount of wages you pay your staff.
Refer to : ATO info on PAYG witholding
When your business makes a profit, and you start paying tax on this profit, then PAYG income tax instalments will be payable via the BAS. Note: Once you lodge your first business tax return, your business will be entered into the PAYG income tax instalment system, and you will need to pay tax on your business income in the year that you earn it via the BAS each quarter.
Refer to: ATO info on PAYG installments
The tax system in Australia runs from 1 July to 30 June, and the quarterly periods are: 1 July to 30 September, 1 October to 31 December, 1 January to 31 March and 1 April to 30 June each financial year.
With business taxes, you also get tax deductions. These change on a regular basis, so it’s important to make sure you’re speaking with your tax advisor regarding what you may or may not be eligible for.
It’s important to meet all your tax and compliance obligations this EOFY. Check out MYOB’s Tax Changes Information section, meant to help startups and small businesses stay on top of their game with tax changes.