Understanding your tax obligation for businesses in Australia

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Getting started with business registrations 3

What you need to know about business income tax 4

Claiming business expenses 6

Brushing up on your GST knowledge 8

Ready to employ staff? 10

An introduction to Fringe Benefits Tax (FBT) 15

Doing your Business Activity Statement (BAS) 17

Record keeping and reporting 19

Lodging your tax return 20

Your compliance checklist 21

MYOB backs aussie business 22

MYOB offers online accounting solutions to suit all types of business 24

The information provided within this document is of a general nature and is intended to be a guide only, in accordance with our Legal Disclaimer. For specific advice regarding your particular circumstances, please consult your tax agent or the Australian Taxation Office as appropriate.

Quick reference guide

myob.com.au1 Understanding tax for businesses in Australia

Congratulations, you’ve started your business.

It’s time to learn how to do your business tax.

Let’s connect

As a new business owner, now’s a good time to find out about your tax obligations. Or perhaps you just need a quick refresher. 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 this eBook. You’ll find heaps of valuable information as well as some great ideas you can act on straight away.

How can MYOB help you to be compliant with the tax office?

We make accounting software for small businesses in Australia and New Zealand, including some pretty nifty cloud-based ones, which you can learn about at the end of this document.

Okay, let’s get started.

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Getting started with small business registrationsFeeling overwhelmed about setting up your business for tax purposes? Well, you’ve probably done most of the hard work already.

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.

Simply registering a business name does not give you any exclusive rights to that name. Only a trade mark can give you that kind of protection. To ensure you have exclusive use of your business name you can apply for a trademark via an IP lawyer or visit ipaustralia.gov.au.

Business registration checklist

Registration type Phone

Tax File Number (TFN) 13 28 61

Australian Business Number (ABN) 13 28 66

Goods and Services Tax (GST) 13 28 66

Pay As You Go withholding (PAYG) 13 28 66

Fuel tax credits 13 28 66

Fringe Benefits Tax (FBT) 13 28 66

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When you’re in business, you receive income for the goods and services you sell. You need to pay tax on business income earned in the financial year (from July 1 to June 30).

You can claim your business expenses against your business income to arrive at your net profit. As a sole trader, you use your Tax File Number (TFN) when you lodge your tax return and your Australian Business Number (ABN) for all your business dealings.

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.

Find out more about sole traders, partnerships and companies.

What you need to know about business income tax

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For more information about tax rates, visit ato.gov.au

Alex’s Bricklaying Service has the following income and deductions for the year:

> Business income (assessable income) = $58,000> Investment income (assessable income) = $2,000> Business deductions = $19,900

Alex includes these amounts in his financial year individual tax return. He works out his taxable income to be:

Assessable income – allowable deductions = Taxable income

> $60,000 – $19,900 = $40,100

To work out the tax he has to pay, Alex applies the financial year’s tax rates to each relevant bracket of his taxable income, keeping in mind that tax rates are subject to change every year.

Below is a simple example:

Taxable income Tax on this income

$0 – $18,200 Nil

$18,201 – $37,000 19c for each $1 over $18,200

$37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000

$80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000

$180,001 and over $54,547 plus 45c for each $1 over $180,000*

* The above rates do not include the the Medicare levy of 2%.

Rather than pay a large amount of tax at the end of the financial year, Alex can make voluntary tax payments during the first year of business. This will help to even out the cash flow.

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Claiming business expensesThere is no complete list of business expenses or allowable deductions you can claim. However, you can use the following as a guide:

> Advertising

> 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.

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If you operate your business in full or in part from your home, you may be able to claim a deduction for:

> Occupancy expenses such as rent, mortgage interest, rates, land taxes and house insurance premiums

> Running expenses such as phone rental and business calls, internet fees, depreciation of office furniture and equipment, additional heating, cooling, lighting and cleaning expenses

Whether you can claim either running expenses or occupancy expenses depends on:

> Your home is your principal place of business

> Your home is not your place of business, but you occasionally undertake some business activities from home (e.g. invoicing of customers).

Working from home

For more information about running your business from home, visit ato.gov.au

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What is GST?

The Goods and Services Tax (GST) is a tax added to the price of goods and services sold in Australia. It is collected by GST registered businesses at each step in the supply chain. At the moment, the GST is set at 10% of the price of the product or service.

Do I have to register 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.

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Brushing up on your GST knowledge

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What will GST cost me?Based on the difference between the GST you collect on items sold and the GST paid on expenses, will determine the amount you pay or receive as a refund from the ATO.

You do this by filing a monthly or quarterly Business Activity Statement (BAS) with the ATO throughout the year – you can also do this yearly if you choose. Your BAS will show that you have to pay or receive a refund.

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Ready to employ staff? 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.

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About PAYG withholding

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. You generally report and pay the withheld amounts to the ATO when you lodge your activity statements.

Creating payment summaries

To meet your end of the financial year PAYG withholding reporting obligations 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.

Creating payment summaries

Online accounting software lets you easily create payment summaries

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Meeting superannuation obligations

Your own super

If you are a sole trader, you are responsible for your own superannuation arrangements. You may be able to claim a deduction for any contributions you make to your own super.

Super for your employees

If you have any eligible employees, you must pay a minimum of 9.50% of their gross salary into a super fund of their choice. This is known as the Super Guarantee Charge.

MySuper is a special fund type which will become the norm by July 2022. From 1 Jan 2014, unless an employee chooses a different fund, all employers must pay the Super Guarantee Charge contributions (9.50%) to a MySuper fund. In 2017, if a fund is not deemed as a MySuper compliant fund type, the monies must be rolled over into a MySuper fund.

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About Super rates - they’re going upThe government is incrementally increasing the Superannuation Guarantee rate.

For the payroll year commencing 1 July 2014, the minimum superannuation guarantee contribution rate of 9.50% will need to be applied.

Superannuation payment dates

Quarter Payment date

Q1. 1 July – 30 September 28 October

Q2. 1 October – 31 December 28 January

Q3. 1 January – 31 March 28 April

Q4. 1 April – 30 June 28 July

Year range Super rate

1 July 2012 9%

1 July 2013 9.25%

1 July 2014 9.5%

1 July 2021 10%

Year range Super rate

1 July 2022 10.5%

1 July 2023 11%

1 July 2024 11.5%

1 July 2025 12%

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Six point checklist for hiring staff

Register for PAYG withholding by visiting the ato.gov.au (you can also do this when you register an ABN).

Register for WorkCover in your state.

Investigate employee awards and entitlements by visiting fairwork.gov.au

Register a MySuper fund as your default fund and stay up to date with super changes. Your income tax will need to be paid by 7 February in the following year if you have a 31 March balance date (or, if you have an accountant, by 7 April).

Acquire accounting software and set up payroll.

Reconcile your PAYG withholding tax obligations for your monthly, quarterly, or annual BAS (depending which reporting frequency you have selected).

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An introduction to fringe benefit taxProviding benefits can be a great way to recognise and reward your employees’ contribution to your business, but you should remember that some benefits or perks are subject to FBT. This is a tax that you the employer pays.

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FBT applies to non-salary or wage benefits you give to your employees, such as use of a company car or a discount on a product. These types of benefits are simply considered ‘cash in another form’, which is why they are separately taxed.

Types of taxable Fringe Benefits include:

> The private use of a car

> Low interest loans used for private purposes

> Payment of private expenses

> Certain types of entertainment e.g. meals where an employee is not travelling overnight

> Other benefits if the cost is above certain thresholds.

Some fringe benefits don’t need to be reported on payment summaries. The rules for working out the taxable value of a fringe benefit vary according to the type of benefit.

For example:

You pay a staff member $35,000 p/a and provide a car worth $10,000

The $35,000 is taxed at the applicable PAYG rate which you withhold and pay to the ATO

The $10,000 car is taxed at the applicable FBT rate (46.5%) which you pay to the ATO.

For more information on Fringe Benefits, visit MYOB Blog.

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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.

The BAS also allows you to report on a range of other taxes, including:

> GST

> PAYG income tax instalments (including the flood levy where applicable)

> PAYG tax withheld

> Fringe benefits tax (FBT) instalment

> Luxury car tax

> Wine equalisation tax

> Fuel tax credits

> Instalment notices for GST and/or PAYG instalments.

Doing your Business Activity Statement (BAS)

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How to lodge your BAS

You can lodge your BAS online, through your accountant or BAS agent or by mail. You can even lodge it over the phone, but only if your BAS is ‘nil’, i.e. you have no activity to report. If your business hasn’t traded and received income or incurred expenses, you still have to complete the BAS and lodge it with the ATO.

Standard Business Reporting (SBR)

SBR is an ATO initiative to simplify business reporting to government. Australian businesses are able to use SBR-enabled software to prepare and lodge their government forms.

Important BAS lodgement and payment datesIf you report monthly: the 21st day of every month for the period just gone.

If you report quarterly:

Q1. 1 July – 30 September 28 October

Q2. 1 October – 31 December 28 January

Q3. 1 January – 31 March 28 April

Q4. 1 April – 30 June 28 July

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As a business owner, you’re required by law to keep accurate tax records. You also need to be able to calculate your income and expenses. If you don’t have enough records to do this, then you’re not meeting your tax obligations and could face penalties.

You must keep tax records for a minimum of five years, and these can include:

> Income and sales records > Expense or purchase records

> Bank records > Asset purchase records

> Contracts and agreements > Year-end records

> Minor deductable expenses > GST records

> Employee or contractor records > Motor vehicle records

> Fuel tax credit supporting records > Stocktake records.

Record keeping and reporting

Avoid the risk of being prosecuted or fined. Get your books organised by using online accounting software

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Lodging your tax returnAs an individual will need to lodge your tax return, but as a business, you will also need to lodge your business tax return. Individual tax returns are due by 31 October each year, but if you use a tax agent you may be able to lodge at a later date. Be sure to check lodgement dates with your tax agent.

Remember, activity statements are different to tax returns. Even if you report your PAYG instalments and other obligations on an activity statement, you must still lodge a tax return.

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1

Decide on your business structure, e.g. sole trader, partnership, company etc.

Register your business name, ABN, GST, PAYG Withholding, Fuel Tax Credits and FBT if applicable.

Work out your income tax and pay on time.

Confirm what you can claim as business expenses and which assets you can depreciate.

Register for SuperStream.

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Your compliance checklist

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Register for WorkCover in your state.

Investigate employee awards and entitlements at fairwork.gov.au

Acquire accounting software and set up payroll

Reconcile your PAYG Withholding Tax obligations for BAS time, which will be monthly, quarterly, or annually depending on the reporting frequency you choose.

Keep your records accurate and readily accessible.

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MYOB backs Aussie business

For the last two decades, MYOB has been developing systems and applications that help small business stay compliant be more productive.

We support business by:

> Working with the Government to make sure you’re aware of changes that will affect your business

> Sponsoring the Telstra Australian Business Awards

> Providing great small business insights through the MYOB Blog – it’s packed full of informative articles, helpful guides and the latest product details

> Publishing the MYOB Business Monitor, a national survey which includes current perceptions and predictions of business owners

> Finding and showcasing great Australian businesses through the Love Your Work initiative.

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Sit back and relax knowing you’re in the hands of expertsMYOB extended support

We’re here to help. You can reach our support team on 1300 555 111.

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LEARN MORE

Take care of business

MYOB Essentials is easy online accounting that has everything you need to take care of business, including payroll.

Take back your time

MYOB Essentials is the fast and easy way to manage your cash flow and ATO compliance requirements. Includes time saving features help take care of the day-to-day bookwork.

Accounting software for people who love what they do

Easy online accounting

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Power to manage business, your way

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Stay competitive

MYOB AccountRight is powerful accounting with business management capabilities so your business can stay competitive to get ahead.

Stay in control

Fully customisable, it enables you to stay in control of the most demanding jobs, inventory and multiple company accounts.

Stay compliant

Improve productivity and efficiency, make ATO compliance easy, and choose the plan that best suits your business needs.

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