How to File Taxes as a Business in Australia
Here, we guide you through the main taxes to be aware of, how they affect your business and when you need to pay them.
This article is for informational purposes only and does not constitute legal, personal, or tax advice. The information contained herein is subject to change and may vary from time to time. For specific advice applicable to your business, please contact a professional.
Starting and running your own business is one of life’s exciting decisions. You get to do what you love and choose the work you want. What you don’t want when you’re busy making sales is the taxman knocking at your door.
While making sales is fundamental, staying on top of your tax liability is equally important. By understanding what business taxes apply, you’ll know what to pay and when. This means you’ll avoid paying taxes when you don’t have to and also avoid costly fines for not paying taxes when you do.
Here are some of the most important and common taxes new businesses should be aware of.
Key Australian taxes
Tax is administered and collected by the Australian Taxation Office (ATO) with the Australian government using the money for public services and infrastructure. These are the main taxes which affect businesses:
1. Goods and services tax (GST)
GST is a sales tax applied to most products and services throughout Australia, though there are some exemptions. The current tax rate is 10%. If you meet certain thresholds, then you must add GST to your products and services and collect it on behalf of the ATO.
You can claim GST credits on goods and services you buy for your business during its normal running.
2. Company tax
Every resident Australian company is liable for company tax on its taxable income at rates set by the government. The tax rate may vary slightly by industry or business structure.
Non-resident companies have to pay company tax on any Australian-sourced income at the same rate as domestic companies.
3. Capital gains tax
If your business sells an asset, you’re taxed on the gain you made from it – this is the difference between the price you paid and the price you sold it at. If the amount is positive, this is called a capital gain and is subject to taxation and recorded as part of income tax.
Small businesses may be eligible for capital gains tax relief under certain circumstances.
4. Pay as you go (PAYG) withholding
PAYG is income tax you withhold from your employees’ salary or wages to help them meet their liabilities. It’s paid directly to the ATO.
5. Payroll tax
This is a state levy which you pay on your employee wages each month provided it exceeds the threshold. Thresholds vary from state to state, as does the rate.
6. Other taxes
You may also be liable for the following charges, depending on the nature of your business and individual circumstances:
Wine equalisation tax
Luxury car tax
Fringe benefits tax
Dealing with tax as a sole trader
If you operate as a sole trader, then your liability is calculated on your personal income. There is a tax-free threshold for individuals, so you’re only liable for income tax on money you earn over that amount, unlike companies which are separate entities and for which there is no threshold – you’re taxed on every dollar the company earns.
The amount you owe is calculated using your annual income tax return. As a sole trader, lodge online through myTax, through a registered agent or by completing a paper tax return.
There are multiple ways to make a payment but the quickest ways are through BPAY with a credit/debit card or online through a myGov account.
Paying tax as a company
When you register your business and apply for GST and an Australian Business Number (ABN) the ATO automatically sends you a business activity statement (BAS) when it’s time to lodge. This contains information telling you when to report and make payments for the different taxes.
Your company’s taxable income is calculated by adding all gross income from your normal business activities (sales) and income that isn’t part of your daily activities, then subtracting any expenses involved in the normal running of the business.
It doesn’t include GST payable or any GST credits.
When to pay
You must lodge an income tax return for any year you run your business, even if you don’t think you owe anything.
If you use a registered agent, they tell you when it’s due.
If you have a BAS, this tells you when to pay – it could be quarterly or monthly depending on the size and nature of your business.
How to pay
Once you know how much you owe and when it is due by, there are various ways to make a payment:
Through BPAY or with a credit or debit card
By using the ATO’s online services for businesses
By phone using the government EasyPay service on 1300 898 089
There are other payment options available including bank transfer, direct debit, in person at Australia Post and by mail.
Partnerships and trusts
You must report your own share of the partnership income on your individual tax return. The partnership, although not a separate legal entity, must lodge a separate partnership return under its own tax file number (TFN).
A trust also has its own TFN and must lodge a trust tax return under that.
Useful resources to help you with your business taxes
Information at any stage.
Previous stage: Launch your business
From choosing the right business licence and insurance to setting up payroll and hiring your first employee, we’ve got the resources and information you need to start your business successfully.
Next stage: Grow your business
Growing your business is always an exciting challenge. From tactiful marketing advice to business expansion strategy, we have the tips and tricks to help you take your business to the next level.