Understanding small business tax
As a business owner, it’s a good time to find out about your tax obligations.
By now, you may have decided on whether you’re to run your business as a sole trader, a partnership or a company. And you’ve probably already registered your business name with the Australian Business Register and received your ABN. Setting up your business correctly is important when you need to pay tax on your business income for the goods and services you sell.
Sole traders pay tax at the same rate as personal income tax. If you are an Australian resident, you don’t pay tax on the first $18,200 you earn. This is called the tax-free threshold.
Allowable business deductions
There is no complete list of business expenses or allowable deductions you can claim. However, you can use the following as a guide:
- Bank fees, charges and tax agent fees
- Business travel including transport and freight
- Depreciation of assets used in your business
- Electricity including other home office expenses
- Hired or leased equipment
- Interest on borrowed money
- Motor vehicle expenses
- Phone expenses
Registering for GST
You will need to register for GST if your turnover (gross income) is $75,000 or more, or $150,000 or more if you are a non-profit organisation. GST registered businesses collect GST on behalf of the Government by building it into the prices of products and services, and then claim GST back from the ATO amounts spent on business expenses.
As your business grows you may need to consider hiring employees. Putting on staff is fairly straightforward, but if you’re unfamiliar with payroll processes and legislation, you may find yourself subject to significant penalties.
When you employ staff, you may have to withhold tax amounts from payments you make to employees and other workers, and pay these amounts to the ATO. This process is done through a Pay As You Go (PAYG) withholding system. As an employer, it’s best to register for PAYG withholding before you make your first payment.
Employers can meet end of the financial year PAYG withholding reporting obligations using MYOB AccountRight. You must:
- Provide by no later than 14 July individual payment summaries to all your employees and other payees. These summaries show how much you paid them and the amount of tax withheld.
- Complete your PAYG payment summary statement and submit to the ATO no later than 14 August. This statement summarises all the payments you have made to employees and other payees and the total amount withheld.
SuperStream is a government initiative being implemented by the ATO, with a goal of improving the efficiency of the superannuation system. It’s a new process of managing data and payments that business owners have to comply with when making superannuation contributions for their employees.
Employers must now make super contributions on behalf of their employees by submitting data and payments electronically in accordance with the SuperStream standard.
If your business has 20 or more employees, SuperStream contributions need to be implemented as soon as practicable. If your business has 19 or fewer employees, SuperStream applies from 1 July 2015. As with larger employers, the ATO will be flexible provided you have a plan in place by 30 June 2016. Here are four reasons why you’re going to love SuperStream. Staying on top of the ATO’s SuperStream requirements is a breeze with MYOB AccountRight. Pay unlimited super contributions quickly and easily without even leaving your software.
Small businesses who are registered for GST are required to submit activity statements to report and pay a number of tax obligations. A Business Activity Statement (BAS) is a form issued by the Australian Taxation Office that you can submit on a monthly or quarterly basis. It’s used to summarise the amounts of GST payable and receivable, by your business in a certain time period.
Here at MYOB, our goal is to make business life easier. We want you to worry less about that three letter word – tax. That’s why we put together easy to follow tips and tricks on understanding tax. Simply visit myob.com.au/businesstips and subscribe to receive valuable information.
The information provided here is of a general nature for Australians and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary.