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How much should my business pay in taxes?

The amount of tax an Australian business should pay depends on various factors, including the type of business structure, the level of taxable income, eligible deductions, and any applicable tax credits or concessions.

For the 23-24 Financial Year the standard company tax rate is 30%. Small Businesses are eligible for a 25% company tax rate provided they are a base rate entity.

What types of business taxes are there?

Small businesses may be subject to various taxes depending on industry, size and annual turnover. Some common small business taxes include:

Income Tax

Businesses are generally required to pay income tax on their profits. The rate of income tax can vary based on the structure of the business (e.g., sole trader, partnership, company) and eligible business deductions.

Goods and Services Tax (GST)

If your business has a GST turnover of $75,000 or more, you are required to register for GST. GST is a value-added tax of 10% on most goods and services transactions.

Pay As You Go (PAYG) Withholding

If your business has employees, you may need to withhold amounts from their wages to cover their income tax liability. This is known as PAYG withholding.

Fringe Benefits Tax (FBT)​

If you provide certain benefits to your employees or their associates, you may be liable to pay FBT. Examples of fringe benefits include company cars and low-interest loans.

Capital Gains Tax (CGT):​

If you sell assets, such as property or shares, you may be liable to pay CGT on any capital gain. Small business concessions may apply in certain circumstances.

Stamp Duty

In some cases, businesses may be subject to stamp duty, which is a tax on certain transactions and documents.

It’s important for small business owners to stay informed about their tax obligations and seek professional advice if needed. Tax regulations can change, so it’s advisable to speak with an expert to fully understand the scope of taxes your business may be required to pay.

How to lodge a business tax return

Understand your business structure

Sole Trader

As a sole trader, you need to lodge your personal income tax return, even if your business income is below the tax-free threshold. Your personal tax return should include your business income and all other forms of personal income, less any deductions you’re eligible for.

Company

A company lodges a business tax return and pays tax on company income.

Partnership​

Each member of a partnership pays individual taxes on their share of partnership earnings. The partnership itself doesn’t pay business taxes, but you still need to lodge a business return under the partnership’s tax file number to declare the partnership’s income, deductible expenses and distribution of net income or loss between partners.

Trust

A trust must lodge an annual tax return; however, the tax payable is determined by how the trust’s income is distributed. If all trust income goes to adult resident beneficiaries, only these individuals pay tax, based on their trust earnings and other income declared in their personal tax returns.
Review your BAS

The ATO automatically sends BAS to any business that has registered for an Australian business number (ABN) and goods and services tax (GST). Most businesses lodge their BAS quarterly to report and pay their GST, pay as you go (PAYG) instalments, PAYG withholding and other taxes.

Your BAS includes information you’ll need when you lodge your company tax return. Therefore, it’s important to review it for accuracy before filing. You can also correct BAS mistakes or make adjustments, as necessary.

Organise relevant business records​
You may need several types of business records to lodge your taxes, such as:
The ATO currently requires businesses to keep records for 5 years (in most cases) from the date you lodge your tax return. Therefore, it’s extremely important to have a robust recordkeeping system in place.
Claim your eligible tax deductions​​
A tax deduction is an eligible business expense you can claim to lower your taxable income and reduce the amount of tax you pay each financial year. If you’ve been keeping good records, you’ll have the tax receipts you need to claim deductions on your small business tax return.
Report employee tax and super contributions​
For many businesses with employees, using payroll software to automatically calculate and report on payroll taxes, PAYG withholding and super contributions makes regulatory compliance and tax time so much more straightforward.
Report employee tax and super contributions​
Determine your tax lodgement date and file well in advance of the deadline. If you’re unable to finish your taxes on time, you may be able to request a deferral. But deferring your lodgement date doesn’t defer your payment date — you’ll need a registered agent to help you if you can’t pay your taxes. If a tax agent requests a payment deferral on your behalf and the ATO approves that request, payment will be due on your deferred lodgement date.
Understand your business structure
Review your BAS
Organise relevant business records
The ATO currently requires businesses to keep records for 5 years (in most cases) from the date you lodge your tax return. Therefore, it’s extremely important to have a robust recordkeeping system in place.
Claim your eligible tax deductions​
A tax deduction is an eligible business expense you can claim to lower your taxable income and reduce the amount of tax you pay each financial year. If you’ve been keeping good records, you’ll have the tax receipts you need to claim deductions on your small business tax return.
Report employee tax and super contributions​
For many businesses with employees, using payroll software to automatically calculate and report on payroll taxes, PAYG withholding and super contributions makes regulatory compliance and tax time so much more straightforward.
Lodge by the deadline​
Determine your tax lodgement date and file well in advance of the deadline. If you’re unable to finish your taxes on time, you may be able to request a deferral. But deferring your lodgement date doesn’t defer your payment date — you’ll need a registered agent to help you if you can’t pay your taxes. If a tax agent requests a payment deferral on your behalf and the ATO approves that request, payment will be due on your deferred lodgement date.

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How do business tax deductions work?

Businesses may be eligible to claim tax deductions for expenses incurred in the course of their operations. These deductions are applicable to most expenses directly linked to generating assessable income.

Business owners can consider claiming deductions for various types of expenses, including day-to-day operating costs, purchases of products or services for business use, and specific capital expenses such as depreciating assets like machinery and equipment.

The eligibility and timing of deductions depend on the nature of the expense. For instance, certain capital expenditures may be deductible over time, and deductions may need adjustment for any private or domestic use. Notably, fines are generally not deductible.

Three fundamental rules govern the acceptance of a business deduction:

The expense must be incurred for business purposes and be an allowable deduction, excluding private use.

If an expense serves both business and private purposes, only the portion used for business is claimable.

Substantiating records must be available to support the deduction.

Moreover, the GST component of expenses cannot be claimed if it is already claimed as a GST credit on the business activity statement.

Businesses can also claim deductions for expenses related to staff safety, particularly protection against safety hazards in the performance of duties. This includes items like hand sanitizers, protective barriers, face masks, gloves, and other personal protective equipment used for business purposes.

It’s essential to be aware of non-deductible expenses, including entertainment costs (except those provided as fringe benefits), traffic fines, private or domestic expenses, and payments associated with unmet PAYG withholding or reporting obligations.

Capital assets, like land for business premises, generally fall under capital gains tax rules and may not be deductible. 

Exceptions exist for capital works, plant, and certain expenditures related to improvements on land for primary producers.

Deductions may be limited for expenses tied to personal services income (PSI) subject to the PSI rules.

Resources

FAQ

Small businesses have various tax obligations, including income tax on their profits, Goods and Services Tax (GST) for eligible businesses, Pay As You Go (PAYG) withholding for employees, and compliance with other taxes and levies.
Tax is calculated on the taxable income of the business, which is the total income minus allowable deductions. The applicable tax rate depends on the business structure and turnover.

Businesses with a GST turnover of $75,000 or more are required to register for GST. Registration allows businesses to collect GST on eligible sales and claim GST credits on business expenses.

PAYG withholding requires busiensses to withhold amounts from employee wages to cover income tax liabilities. It applies to businesses with employees and ensures that tax is paid regularly throughout the year rather than as a lump sum at tax time.
Small businesses can claim tax deductions for various expenses directly related to earning assessable income. This includes day-to-day operating expenses, business purchases, and certain capital expenses. However, there are specific rules regarding eligibility and record-keeping.
To ensure compliance, small businesses should keep accurate and complete records of income and expenses, use correct methods for calculating and reconciling deductions, report income and deductions on time, and pay any amounts owed promptly. Seeking professional advice can also be beneficial.
Yes, there are tax incentives and concessions available for eligible small businesses. These may include small business tax offsets, instant asset write-offs, and other concessions aimed at supporting small business growth.
Failure to meet tax obligations can result in penalties and interest charges. It’s crucial for small businesses to stay informed, seek professional advice, and address any issues promptly to avoid legal and financial consequences.

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