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Understanding and registering for business taxes

There are a number of taxes that you may be required to register for. Understand the different types of taxations that may apply to your business, and how to register below:

Register for a Tax file number (TFN)

A TFN is a unique number issued by the Australian Taxation Office (ATO) to individuals and organisations to help manage tax and other government services. The type of TFN that you need however, can depend on your business structure.

If you operate a partnership, company or trust, your business will need its own TFN. A TFN can be obtained at the same time as an Australian Business Number (ABN), using the same application form.

Sole traders use their individual TFN in dealings with the ATO.

Registering for a TFN is an important step when starting your business as having one allows you to:

  • quote to investment bodies responsible for paying interest, dividends and unit trust distributions
  • quote to government bodies, for example the ATO, when applying for an ABN or lodging income tax returns
  • quote to employers (this applies to individuals only).

Register for Goods and Services Tax (GST)

Goods and services tax, often known as GST, is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. GST applies to most Australian businesses and it's highly likely that your business will be affected by the tax.

If your business is registered for GST, you'll have to collect some extra money (one-eleventh of the sale price) from your customers and pay it to the Australian Taxation Office (ATO) when it is due.

Do I need to register for GST?

You must register for GST if:

  • your business has a GST turnover of $75,000 or more
  • your non-profit organisation has a turnover of $150,000 per year or more 
  • you provide taxi travel for passengers in exchange for a fare as part of your business, regardless of your GST turnover. This rule applies to both taxi owner drivers and people who just rent a taxi.

As a business owner, it's your responsibility to register for GST if your turnover exceeds the $75,000 threshold or is likely to exceed it.

The ATO advises that if you've just started a new business and expect it to earn $75,000 or more in its first year of operation, you should register for GST.

GST turnover is your business's gross income, not your business's profit.

If your business doesn't fit into one of the above categories, you don't have to register for GST.

Head to the ATO website to work out your GST turnover.

Example

If you run an online clothing store and you sell $80,000 worth of clothes, you'd have to register for GST because your GST turnover is over the $75,000 threshold. This rule still applies, even if you only get to keep $40,000.

When do I need to register?

If you haven't registered for GST, and you become aware that your GST turnover will exceed the $75,000 per year threshold, you will have to register for GST within 21 days.

It's a good idea to check each month to ensure you're not likely to go over the over the limit. Keeping an eye on your GST turnover is important so you can register if necessary.

If your GST turnover is below the $75,000, registering for GST is optional.

You may choose to register if your GST turnover is below the $75,000 threshold, however this means that once registered, regardless of your turnover, you must include GST in your fees and claim GST credits for your business purchases.

How do I register for GST?

  1. You need an Australian Business Number (ABN) to register for GST. Your ABN is part of the GST system and your ABN will be used as your GST registration number.

    If you don't have an ABN and are registering for one,  you can use the same online form to apply for tax registrations during the application process. If you anticipate that your GST turnover will be over $75 000, make sure you register for GST when completing your ABN application.

  2. Visit the ATO Online Business Portal and login with your Administrator AUSkey. You will be able to complete your tax registrations using the Business Portal. If you haven't got an AUSkey, you need to find out more about getting an AUSkey on the ATO website. 

  3. If you are unable to register online, you can call the ATO or register for GST through a registered tax agent.

If you're registered for GST, you're entitled to claim input tax credits for the GST paid on items you've bought for business use. If you're not registered, you can't claim input tax credits.

What are GST credits?

GST credits are a potential amount of money your business might be able to claim from the ATO.

If you are registered for GST, you can claim back the GST that has been included in the purchase price of something you've bought for your business.

Example

Laura runs an accountancy firm and has just bought a new computer for the office. The computer cost Laura $1100, including GST. Because GST is one-eleventh of the sale price, Laura would have paid $100 in GST.

Laura is registered for GST because her business's GST turnover is more than $75,000. She is able to claim GST credits for the GST included in the sale price of her computer ($100).

If at the end of the year her GST credits are higher than the amount of GST she has to pay the ATO, she will be able to get a refund.

Tax invoices

If you’re registered for GST, your invoice must be a tax invoice. Tax invoices are different to regular invoices as they include the GST amount for each item along with some extra details.

Tax invoices must be formatted correctly for you to be able to claim you full tax entitlements.

Find out more about tax invoices, including how to correctly format them.

What happens if I don't register for GST?

If your GST turnover is under $75,000 and you don't register for GST, you won't include a GST component in your prices. This means that any invoices you provide will need to show that GST was not included in the purchase price. You also can't claim GST credits for your business purchases.

Small business GST concessions

If your business has an annual turnover of less than $2 million, you may be able to access the following GST concessions.

Accounting for GST on a cash basis

You can account for GST in the same tax period you receive payments from your customers and claim input tax credits for making payments to your suppliers.

Paying GST by instalments

You can pay GST by instalments each quarter based on what you or the Australian Tax Office (ATO) estimates your GST liability to be. You can vary this amount each quarter.

Annual apportionment of GST input tax credits

You can claim a full input tax credit for a business purchase that you intend to use partly for private purposes and make a single adjustment to account for the private use percentage at the end of your income year.

Register for Fringe Benefits Tax (FBT)

Fringe benefits are an important part of business and can be a useful way of attracting quality staff. However, if you're going to provide fringe benefits to your staff, you need to be aware of your taxation obligations.

Fringe Benefits Tax (FBT) is a tax payable by employers for benefits paid to an employee (or an employee's associate e.g. a family member) in place of salary or wages. This is separate to income tax and is calculated on the taxable value of the fringe benefits provided.

If you provide fringe benefits to your employees, the Australian Taxation Office (ATO) recommends that you register for FBT.

Why offer your employees fringe benefits?

To secure the best workers for your business, you often have to entice them with non-income related benefits.

For example, an employee may receive fringe benefits in the form of:

  • a car
  • car parking
  • low interest loans
  • payment of private expenses.

It's entirely legal and a common form of reimbursement used by businesses for their employees.

How to provide fringe benefits

If your business provides fringe benefits to your employees then you need to:

  • calculate how much FBT you have to pay
  • register for FBT
  • keep the necessary FBT records
  • report fringe benefits on your employees' payment summaries
  • lodge a return and pay FBT to the ATO
  • understand which benefits are exempt from FBT.

Register for Pay As You Go PAYG withholding

When you make payments to employees and some contractors, you need to withhold an amount and send it to the Australian Taxation Office (ATO) at regular intervals. We call this Pay As You Go (PAYG) withholding.

When do I have to register?

You'll have withholding obligations if any of the following apply:

  • you have employees
  • you have other workers, such as contractors, and you enter into voluntary agreements to withhold amounts from your payments to them
  • you make payments to businesses that don't quote their Australian business number (ABN).

If you make payments subject to withholding, you must:

  • register for PAYG withholding with the ATO as soon as you know you need to withhold
  • withhold amounts from wages and other payments
  • lodge activity statements and pay the withheld amounts to the ATO
  • provide payment summaries to all employees and other payees by 14 July
  • provide a PAYG withholding payment summary annual report to the ATO by 14 August.

PAYG instalments VS PAYG withholding explained

It's important to note that ​PAYG withholding is different to PAYG instalments.

If you're an employer, PAYG withholding is your legal requirement to keep a portion of payments made to your employees and other businesses, which you then pay to the ATO.

You complete this on your employee's behalf by withholding some of their pay as tax. Your employees can make a claim against the amount withheld at the end of the financial year.

You may also have to withhold tax from payments you make to other workers, such as contractors.

PAYG instalments allow you or your business to meet your income tax obligations. PAYG instalments are generally paid by business owners, investors and sub-contractors who earn a certain amount of income. If this is you, find out more on PAYG instalments on our Register for PAYG instalments page.

Register for Pay as you go (PAYG) instalments

Pay as You Go (PAYG) instalments allow you and your business to meet your income tax obligations.

PAYG instalments explained

PAYG instalments is a system for making payments each quarter towards your expected income tax obligation on your business and investment income for the current financial year.

PAYG instalments are generally paid by business owners, investors and sub-contractors who earn a certain amount of income.

The Australian Taxation Office (ATO) will write to tell you if you must pay PAYG instalments.

PAYG changes explained

Changes to Pay As You Go (PAYG) instalment thresholds have been introduced to help save you and your business, time and money.

​Changes to PAYG instalments from 1 July 2014 include:

  • an increase to PAYG instalment thresholds, which may mean you no longer need to pay an instalment. Threshold changes include:
    • business or investment income increases from $2 000 to $4 000
    • adjusted balance of assessment increases from $500 to $1 000
    • notional tax increases from $250 to $500.
  • no longer being required to remain in the PAYG system if you have a zero instalment rate, even if you're registered for Goods and Services Tax (GST)
  • automatic removal from the PAYG instalments system if you no longer meet the PAYG instalment thresholds - the ATO will let you know if this happens.

PAYG instalments VS PAYG withholding explained

It's important to note that PAYG instalments are different to PAYG withholding.

If you're an employer, PAYG withholding is your legal requirement to keep a portion of payments made to your employees and other businesses, which you then pay to the ATO.

You complete this on your employee's behalf by withholding some of their pay as tax. Your employees can make a claim against the amount withheld at the end of the financial year.

You may also have to withhold tax from payments you make to other workers, such as contractors. For more information on meeting your requirements as an employer, visit our page on Register for PAYG withholding.

Register for Payroll Tax

Payroll Tax is a state tax on the wages paid by employers. It's calculated on the amount of wages you pay per month and collected in each state or territory that your staff are location in.

However, not all businesses will have a tax obligation. You are only liable for payroll tax if your total Australian wages exceed the exemption threshold that applies in your state or territory—exemption thresholds vary between states.

Example

In financial year 2013-14, QLD and NSW have a 31-day threshold of $91,666 and $63,699 respectively.

If you employ staff in QLD and NSW and your total Australia-wide wage bill for those 31 days is $95,000, you will need to register for Payroll Tax in both states. If your bill is $75,000, you would only need to register in NSW.

If your total Australian wage bill is under the maximum threshold for your state or territory, you're not liable to pay. Find out the monthly threshold by visiting the Revenue Office website in your state or territory - listed below.

Visit Payroll Tax Australia for more information, videos and webinars to help you understand the process of registering for payroll tax in your business.

Other taxes you need to understand include:

Income tax

Federal income tax is levied on the taxable income of a person or a business. It's calculated on assessable income less any allowable deductions.

  • Assessable income is generally income your business earns - it does not include GST payable on sales you make, or GST credits.
  • Allowable deductions are deductions for certain expenses that you necessarily incur in relation to your business.

As a sole trader, it's likely you'll pay income tax. You must lodge an income tax return for any year in which you run a business, even if you expect to have no tax liability.

If you're a sole trader or a company structure, read our Tax differences comparison table to find out more about your tax obligations.

Medicare levy

Medicare is the system that gives Australian residents access to health care. To help fund the scheme, most taxpayers, including business owners and their employees, pay a Medicare levy of 2.0% of their taxable income. Vsit the ATO website for more information on the Medicare levy and your taxable income.

Tools to work out how much tax to withhold from employees

It's important to calculate the right amount of tax to withhold from your employees' pay. If you pay casual employees or make regular weekly, fortnightly or monthly payments to your employees, there are handy tables available for use. The ATO have tax tables that allow you to enter an earnings amount and the tool will display the correct amount of tax to withhold. Tables are also available to work out the correct amount to withhold for:

  • the Medicare Levy
  • the Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFFS)
  • superannuation payments.

A tax withheld calculator is also available to calculate the correct amount of tax to withhold for your employees or other payees. Take a look at the Tax tables available for employers on the ATO website.

Read more about paying your employees.

Extra pay period in a financial year

A year usually consists of 26 fortnightly pay periods. However some years (such as the 2015/16 financial year) have 27 pay periods. This means that if you or your employees usually expect to receive a tax refund on your tax return you may find that money is owed instead, due to the extra pay period.

For the employees that you withhold tax for (through Pay As You Go (PAYG) withholding), it's a good idea to provide them with the option of withholding additional amounts from their pay to avoid the possible debt.

Check out the ATO website to find out more about Withholding for 27 fortnightly or 53 weekly pays in a year.

Need tax help after hours?

As a small business owner, you're often dealing with administrative work such as taxation outside of business hours.

To help you with a range of tax issues at a time that suits you, the Australian Taxation Office (ATO) is offers after hours assistance for small business owners.

The ATO can help answer your questions on:

Help is available via webchat or a call-back service from 6pm-9pm Australian Eastern Daylight Savings Time (AEDT) Monday-Thursday.

The webchat service can provide general guidance and tax information in real-time, while call-back service calls can provide a more personalised and secure experience.

Land tax

Land tax is an annual tax payable by owners of land. Land tax is administered by your state or territory government and is applicable everywhere except for the Northern Territory.

The laws between states are comparable, but there are some variations.

The amount of land tax you pay is determined by the combined unimproved value of taxable property. If your business owns property then it's likely you'll need to pay land tax on it. Make sure you know what your entitlements are, because land owned by some types of organisations can be exempt from land tax.

Your main home (ie permanent residence) is generally exempt from land tax.

You can read about land tax and exemptions in your state or territory here.

Capital Gains Tax

Capital Gains Tax (CGT) is the tax that you pay on any capital gain. It's not a separate tax, just part of your income tax.

The most common way of making a capital gain or loss is by selling assets, such as property or vehicles, which is a CGT event. Examples of a CGT event are when:

  • you sell or give away an asset to someone else
  • an asset you own is lost or destroyed
  • shares you own are cancelled, surrendered or redeemed
  • you stop being an Australian resident
  • a company makes a payment (not a dividend to you as a shareholder).

If your home is a place of business, your business might have capital gains tax implications when you sell it.

Small business CGT concessions

There are four small business CGT concessions that can be used to reduce your capital gain on business assets. So long as you meet certain conditions, you can apply for as many concessions as you're entitled to until the capital gain is reduced to nil.

The four CGT concessions are:

Small business 15-year exemption

No assessable capital gain when selling a business asset that has been owned for 15 years and you're aged 55 years or over and are retiring. Also applies if you're permanently incapacitated.

Small business 50% active asset reduction

Reduce your capital gain on a business (active) asset by 50%.

Small business retirement exemption

A capital gain from the sale of a business asset will be exempt up to a lifetime limit of $500,000. If you're under the age of 55, you must pay the exempt amount into a complying superannuation fund or retirement savings account.

Small business roll-over

Defer you capital gain on a small business asset for a year. Under this method, you don't include the gain in your income until a change in circumstances causes a CGT event to happen which 'crystallises' the gain. For example, you don't buy a replacement asset within the required time or you sell the replacement asset.

Excise duties

Excise duty is a tax on certain goods produced or manufactured in Australia. These goods are called excisable goods, and include alcohol, petroleum, tobacco and coal.

You have to be registered with the Australian Taxation Office (ATO) before you can:

  • produce, store, deal in or manufacture excisable goods
  • move excisable goods underbond (that is, excisable goods on which duty has not been paid)
  • lodge returns and claims.

Once you have registered for excise purposes, you'll be registered for all excise activities.

If you plan to undertake an excise activity, you need to apply for a licence.

Stamp duty

Stamp duty is a tax on written documents ('instruments') and on certain transactions. It is imposed by state and territory governments. It can vary depending on the state or territory, and may be called stamp duty, transfer duty or general duty.

What transactions are taxed?

Taxable transactions include:

  • motor vehicle registration and transfers
  • insurance policies
  • leases and mortgages
  • hire purchase agreements
  • transfers of property (such as businesses, real estate or certain shares).

The rate of stamp duty varies according to the type and value of the transaction involved.

Are there any stamp duty concessions or exemptions?

Depending on the nature of the transaction, certain concessions and exemptions may be available.

See the Stamp duty page on the Australian Taxation Office (ATO) website for a list of the concessions and excemptions and how these differ across state and territories.

Rates

Rates are property taxes charged by local government on properties in their municipal area. You'll receive a rates bill from your local council on any property your business owns.

Rates can cover the payment of a range of public or community services including the running of the council, roads, bridges, kerbing, parks and gardens, immunisation, libraries, community activities, tree planting and pest eradication.

The price, method of valuation and timing of rates payments is variable across councils. How much you pay depends on the value of your property.

What rates will I need to pay?

As rates are charged by your local council they may vary, however rates are generally categorised as Residential, Business, and sometimes Business CBD.

Some examples of rates charged by your council may include:

  • general rates
  • Utility rates for things like gas, stormwater management or waste management services.
  • Other special rates or charges - these may be on off charges and will depend on your council.

Rates are usually charged on a quarterly basis.

Who do I talk to about my rates?

You can speak to your local council about your rates to find out what charges apply to your business.

International tax

Residents and non-residents have different tax rates.

  • A taxpayer who is a resident of Australia for income tax purposes is liable to tax on a worldwide income.
  • Non-residents are liable to tax only on income derived from Australian sources.

Whether you are a resident or non-resident of Australia for income tax purposes depends on your business entity.

Value Added Tax (VAT) for European Union based businesses

As of 1 January 2015, there have been changes to the way that VAT is charged for European Union (EU) based businesses.

This change applies to businesses that supply:

  • telecommunications (e.g. SMS, phone, internet access)
  • broadcasting (e.g. television, radio)
  • electronic services (e.g. software downloads, cloud business online gaming, e-learning, online payment services).

EU based businesses

Previously, VAT was charged according to where the supplier was based. As of 1 January 2015, for trade from one EU nation to another, VAT is charged according to where the customer is based.

Non-EU based businesses

If you're a non-EU business but supply to customers in the EU, there are no changes to the rules. Current rules already charge VAT according to where the customer is located. This means exports direct from Australia to the EU will not be affected by the changes.

The information was first published on business.gov.au

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