Understanding your tax obligations is something all business owners must be well versed in. If you do not abide by these obligations, then there will be consequences when the ATO comes knocking on your door. This article is a quick read on the main types of taxes imposed on businesses in Australia.
Similar to individuals, businesses also have to pay income tax on their portion of taxable income. The income tax is generally calculated by multiplying the taxable income by the rate and deducting the tax offsets. Taxable income is calculated by deducting the credits or deduction from the assessable income.
Assessable income is defined as the income that your business generates before tax. Assessable income is a combination of ordinary income and other income like the sale of an asset or capital gains.
GST payable is not included.
Goods and Services Tax(GST)
Currently the GST rate in Australia is 10% and is imposed on most products and services sold in Australia. However, some items are exempt from GST and these include most basic foods, some services and healthcare, some education courses, childcare, overseas exports and proceeds from a business sale.
While your customers are supposed to pay the GST, it is your responsibility to generate tax invoices for these customers and then pay the aggregated GST to the ATO along with your BAS (Business Activity Statement). To calculate the price after GST you can use an Australia GST calculator.
Your business is required to register for GST if the annual turnover is more than 75k dollars. An exception to this rule is if you run a taxi or limousine service you are required to register for GST regardless. Registering for GST hassle free and can be done over the phone, online or through a registered agent.
If you have registered for GST, you can also claim ITC if you paid GST for any goods or services required to carry out your business.
Capital Gains Tax (CGT)
CGT is tax imposed on the next capital gain or loss in relation to a CGT asset. The net capital gain or loss is calculated by deducting the price you disposed of the asset by the price you purchased the asset for.
CGT assets include real estate, foreign currency, shares in a company and units in a unit trust.
An important thing to note is that unlike GST, capital gains tax is not a separate tax. This CGT will be calculated in the assessable income calculation.
Fringe Benefits Tax(FBT)
This type of tax is imposed on your business or associates for the benefits you give your employees. Some example of benefits is a work car, discounted tickets, a gym membership etc. However, wages, share schemes and superannuation contributions do not fall under FBT.
This tax is imposed on the total wages paid by your business each month. You have to register for this tax only if you meet the tax-free threshold.
To conclude these are some of the most common types of taxes imposed on businesses in Australia. Check out the ATO for more information on special taxes that could be imposed on your business.