Do you understand the different types of business taxes you may be liable for as a small to medium enterprise (SME) owner?
Having this knowledge not only ensures compliance but could also prevent receiving an unexpected bill from the Australian Tax Office (ATO). Due to the ATO’s new data matching technology, they are following up on many outstanding accounts and may hold you liable for a tax you were unaware you qualified for.
This full overview of business taxes could position your business advantageously to make use of all potential tax benefits. Know your obligations and how to best manage your business taxes with the breakdowns below.
Income Tax
What It Is: Income tax is levied on the net profit of businesses and individuals. For businesses, this means paying tax on the profit after all allowable deductions have been subtracted from total income.
For example, if your SME generates $100,000 in revenue and incurs $40,000 in allowable expenses, your taxable income would be $60,000.
Pro Tip: Maintain accurate records of all business transactions to optimise your tax deductions and ensure accurate reporting.
Payroll Tax
What It Is: Payroll tax is a state-based tax that applies once your total wage expenditure exceeds a certain threshold, which varies by state.
In Queensland, for example, you are liable for payroll tax if your total wages exceed $1.3 million annually. You will then pay tax on the amount exceeding this threshold.
Pro Tip: Monitor your payroll closely and consult with a tax professional to manage thresholds effectively, especially if operating across multiple states.
Capital Gains Tax (CGT)
What It Is: CGT applies when you sell a capital asset, such as property or shares, at a profit.
There are several CGT concessions available for small businesses that can significantly reduce, or sometimes completely eliminate, your CGT liability on the sale of business assets.
Pro Tip: Plan asset disposals carefully and consult with a tax advisor to leverage CGT concessions and minimise tax impacts.
Fringe Benefits Tax (FBT)
What It Is: FBT is a tax on certain benefits you provide to your employees or their associates beyond their salary or wages, such as company cars, low-interest loans, and private health insurance.
Pro Tip: Familiarise yourself with the FBT exemptions and explore how providing non-cash benefits can be an effective way to remunerate employees while managing tax liability.
PAYG Withholding
What It Is: The PAYG withholding system requires employers to withhold tax from payments made to employees and other workers, including contractors, and remit these withholdings to the ATO.
Pro Tip: Ensure your payroll systems are up-to-date with the latest tax tables to calculate withholdings correctly. Using automated payroll software can help simplify this process.
PAYG Instalments
What It Is: PAYG instalments help you manage your business’s expected tax liability by making incremental payments throughout the year based on an estimate of your annual income tax debt.
Pro Tip: Regularly review and adjust your PAYG instalments to match your expected tax liability, preventing cash flow issues at the end of the financial year.
Goods and Services Tax (GST)
What It Is: GST is a 10% tax on most goods and services sold or consumed in Australia. Businesses with an annual turnover of $75,000 or more must register for GST.
Pro Tip: Keep diligent records of all GST-inclusive transactions. If registered, you’ll need to report and remit GST collected through Business Activity Statements (BAS).
Fuel Tax Credits
What It Is: Businesses can claim credits for the tax included in the price of fuel used in business operations, effectively reducing the cost of fuel used.
Pro Tip: Maintain detailed logs of fuel usage to ensure you are claiming accurately. The specific rates and eligible fuels can vary, so regular updates from the ATO are crucial.
Land Tax
What It Is: Land tax is imposed on land owners and calculated based on the property’s value exceeding certain thresholds, which vary by state.
For example, in New South Wales, if your land value is above $734,000, you will incur land tax at rates that increase progressively with the value of your land.
Pro Tip: Regularly assess land holdings and their declared values to plan for potential land tax liabilities.
Know Your Business’s Tax Obligations.
Understanding your business tax obligations is crucial to running a successful business. By staying informed and planning ahead, you can ensure compliance, maximise deductions, and manage your cash flow more effectively.
If you need personalised advice or assistance, reach out to us at Lift Accounting & Advisory.
Our experts are here to help you navigate your taxes efficiently, ensuring you are well-prepared for tax season and beyond.
Let’s make managing taxes simpler for your business!
