Managing your accounting & tax responsibilities is a necessary part of running a good business in Australia.
Not only will your business get along with other organisations much better – ATO, financiers, suppliers, employers – you’ll also reduce your exposure to business or cashflow hiccups along the way.
Case in point, we had taken over the accounts for a thriving retail operation but the bookkeeping, BAS and tax returns had not been updated for quite some time by the previous accountant. After the tax returns were prepared to a state where we could lodge them, the calculated tax liability was of surprise to the business owner – whom traditionally had not budgeted for tax outlays at all.
The benefits for keeping accounting and tax in check speaks volumes for the future success of a venture where they are:
- more likely to be profitable, have better cash flow and operate with less financial risk;
- may be easier to sell in the future, and possibly at a better valuation;
- easier to access external finance, including bank finance, if needed; &
- the venture may be better placed to respond to future challenges and opportunities.
Tax obligations in Australia could cover a whole wall with information but we’ll keep to the main sticking points you should be aware of.
Goods and Services Tax (GST)
This broad-based tax applies to most goods and services that Australian businesses sell.
The current rate is 10 per cent with businesses typically adding GST to the goods and services they sell, while also claiming credits for the levy included in the price of goods and services they purchase for their own organisation.
You may be able to claim GST paid on purchases, however not all purchases are eligible so it’s important to understand what you can claim for. Some basic criteria for making a claim include:
- The tax invoice featuring GST;
- Having the purchase relating to business; &
- Keeping a copy of the tax invoice where the supplier is more than $82.50.
Generally, businesses have to register for GST where the anticipated turnover is above $75,000. Once registered, you’re obliged to add GST to your tax invoices but also report GST activity to ATO via business activity statements or annual GST returns. The process can be challenging for some businesses but there are various ways to handle it more efficiently.
The ATO suggests using business accounting software to streamline your GST collection and reporting. You may also want to separate the GST you collect and keep the money in a separate savings bank account so that it’s easier to track.
In general, you’ll need to keep receipts or tax invoices for all your business expenses. This includes cash purchases & receipts from online purchases.
Your receipts or tax invoices should show:
- name of payee or payer
- the amount paid
- proof of payment
- The GST paid (if registered for GST)
- ABN number (if Australian based, and registered for GST)
Some examples of receipts to keep:
- Assets – such as property, motor vehicles, furniture & equipment;
- General business – software, stationary, mobile, internet;
- Travel expenses – all receipts from any travel, including food, accommodation and transit costs.
Remember if you make a business purchase, but sometimes use it for privately (i.e. mobile phone), you’ll also need to keep records illustrating what percentage of that was private.
Physical or paper copies of your receipts are not required, but if you’re claiming something as a tax deduction, you have a legal obligation to retain that business record for five years. Software such as Xero & Receipt Bank can be used to help you save these tax invoices on the cloud in the right manner.
As the Australian Taxation Office (ATO) can review your records at any time, it’s important that you are able to access these when necessary.
Pay-As-You-GO (PAYG) Withholding
When you pay staff, you are most often required to set aside (or withhold) a portion of their wages to pay to the government on their behalf.
When paying out wages or salaries, employers should ensure that the corresponding amount from PAYG Withholding tax tables are applied, although many accounting platforms (i.e. Xero) will do this automatically for you.
At the end of the financial year, employers are obliged to prepare PAYG Payment Summaries both for their staff and the ATO, based on the total wages and PAYG Withholding accumulated throughout the year.
The PAYG Instalment system makes it easier for your business to meet your income tax obligations by requiring payments at the end of each quarter. These quarterly instalments go towards the expected income tax obligation accumulated from your business and investment income for the current financial year.
The ATO will write to you should you need to make these payments, usually after lodging your tax return where tax is payable. Generally it will apply to individuals, organisations or trusts who earn a certain amount of individual, gross business or investment income.
Business Activity Statements (BAS)
BASs are the government’s way of keeping businesses in check with GST and PAYG on a regular basis. These can often be generated from your accounting platform if the bookkeeping is up to date.
Due dates to plug in your calendar:
– 28th of the month following the end of the quarter for most DIY’ers, or
– 25th of the second month following the end of the quarter if lodging with a tax or BAS agent.
There are of course other dates which can apply if you have registered for GST on annual basis or have quite a few employees & paying more than $25,000 in PAYG Withholding annually.
The tax returns are the government means to tax you based on your taxable income annually.
Almost everyone & all entities needs to lodge an annual tax return. These report to the ATO your income and expenses for the financial year, determining a taxable income that gets taxed at the applicable rate.
Companies with a turnover of less than $25m get taxed at 27.5%, whereas individuals get access to a tax-free threshold and are taxed at their marginal rate.
There’s a range of due dates for the tax returns but the main ones are:
- 31 October – for individuals who are DIY for the tax return usually via (etax)
- 15 May (next year) – for companies (except for large companies)
- 5 June – for individuals / trusts
To get your business in top shape, we recommend keeping a regular set of accounts and anticipating any future tax outflows sooner rather than later.
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