Tax Rate Guide for Small Business in Australia

When you have a small business, it is important to be across your tax obligations. Understanding the income tax required for small businesses in Australia will support the organisation and flow of your business activities. Whether you are working within the structure of a Company, Trust, Partnership or Sole Trader, this tax rate guide will explain what your obligations are.

Business Activity Statements

Business Activity Statements (BAS) are due to be submitted quarterly. This is a legal requirement and essential if your small business is registered for GST (Goods and Services Tax). Anyone who is registered for GST, inclusive of a company or any other enterprise that has an annual turnover of $75,000 or more must submit a BAS.

Sole Traders are required to register for GST and this is generally commenced when they have met the threshold of $75,000 turnover for the year, or when this amount is forecast to be earnt for the financial year. A not-for-profit organisation will also need to register when GST income reaches $150,000 for the year, however Business Activity Statements are not required to be submitted unless requested by the ATO (Australian Tax Office).

A Business Activity Statement needs to be completed to:

• report and pay the GST the business has collected over the designated period.
• claim the business’s GST credits.

The Business Activity Statement due dates are:

•          28 April: Your BAS for January to March

•          28 July: Your BAS for April to June

•          28 October: Your BAS for July to September

•          28 February: Your BAS for October to December

REGISTERING FOR GST

Before you can register for standard Goods and Services Tax (GST), you will need to have an Australian Business Number (ABN). You can get an ABN when you first register your business name or at a later date. Your tax professional is there to support you with this.

You will also need to:

·         work out whether your business’s sales are subject to GST and then include the GST in the price of these sales. Some sales may be exempt. Ask your tax professional to advise you if this is the case.

·         put aside the GST as you collect it so it is available to pay to the ATO when it is due.

How much is GST?

GST is a federal tax of 10% levied on most goods and services sold in Australia. Businesses should add 10% on top of the cost of goods and services in order to pay the tax.

GST Credits

GST charges that have been incurred as a business expense in relation to offering your goods or services can be claimed back as a credit. You must be registered for GST to be able to claim GST Credits.

PAYG Obligations

Pay As You Go (PAYG) are deductions from the gross wages paid to any staff you employ. This is a withholding tax accruing from deductions from the gross wages paid to all staff, company directors and office holders which is then paid directly to the ATO during the year.

SMALL BUSINESS TAX RATES IN AUSTRALIA

What is a Small Business?

In Australia, a business is considered small if it has an annual turnover of $10 million or less. It can be run under different structures including a company, trust, partnership or sole trader. If you have a business, you will need to pay business income tax. If the annual turnover of the business is less than $10 million, you will pay a reduced rate of 26% for the 2020/21 financial year, reducing to 25% for the 2021/22 financial year rather than the full rate of 30% which is applicable for companies with a larger turnover. Previous to this, the tax rate for small businesses had been 27.5% up to and including the 2019/20 income year. The reduced tax rates mentioned apply only to companies that, together with all entities they are connected to, fall below the combined turnover threshold of $50 million.

If you are a sole trader, you will pay tax at the individual income rate, with a tax-free threshold of $18,200. This is because this kind of business structure is taxed as part of your own personal income. You may not need to submit a business activity statement (BAS), as you will lodge an individual tax return instead.

Income Tax Obligations

Some small businesses in Australia will also have income tax obligations where they pay a percentage of income in addition to the GST and other things on their BAS. Your obligations here will depend on the company structure and whether you are a sole trader or actually own the company.

Payroll Tax

Payroll tax may also be relevant to your small business. This is dependent on whether your total wage bill exceeds the threshold determined by your state. Payroll tax thresholds still need to be observed by sole traders as staff can be employed under this structure.

How to work with your Accountant

Having your accounts in order, bookkeeping up to date, and records kept when running your small business will ensure a smooth process for completing your taxes. Helping your accountant to help you is important.

Here are some tips:

–    Communicate any changes in business structure or business operations without delay.

–    Record everything either on paper or electronically using a platform such as Xero or QuickBooks.

–    Ensure your bookkeeper and accountant communicate regularly so they are on the same page.

–    Specify everything you require as early as possible. Do you need your Tax Return only done? Or are you needing Tax Planning, Business Advisory, Structuring/Set-up Advice and Bookkeeping? Your financial adviser or accountant will be able to help identify these if you are unsure.

It is recommended to use an accountant that understands the needs of small businesses. That way, offsets and claiming deductions can be maximised, giving you value for money. A professional can help to address tax concerns and find tax breaks that are not commonly known.

Changes as a Result of COVID-19

Due to the current climate, legislation is constantly changing so it is wise to keep up to date with the latest changes. If unsure, consult your trusted financial advisor or accountant. Refunds and grants are being made available for small businesses in Australia so this can be discussed with your consultant also.

Disclaimer: the information contained in this article is for general information purposes only and in no event will Factor1 or its affiliated entities be held liable for any loss or damage caused through the use of this information. Independent advice is recommended for all individual circumstances. Data and specifications included correct as of June 2021.