Business Tax Deadline Is Here: Are You Ready?

If you’re a business owner in Australia, it’s a good idea to understand the different types of taxes you might encounter.

As your business earns more, your tax return will change at the end of the financial year. And with the deadlines looming, you may want to prepare!

In this article, we’ll cover the different business taxes Australian businesses may want to be aware of.

Different Types of Business Taxes

When making money off your enterprise, it’s crucial to understand what business tax is. It’s a social responsibility to pay your taxes every income year, whether you’re a base rate entity or a small business.

To know how much tax you need to pay, you can start by learning about business tax that’s applicable to you. For help with paying taxes, you might want to seek funding as needed.

Here are the business tax types and how to calculate them:

Capital Gains Tax

CGT is paid by either the sole trader or the company. This applies to the money or earnings you make from selling capital assets like property, trading stock, or businesses for every income year.

Generally, a 25% tax rate is applied to the difference between the cost of your asset and the value you sell the asset for. However, this tax rate can vary and it’s advised to consult a registered tax specialist.

Keep track of your enterprise’s capital gains so you can pay the right amount of taxes for each taxable period.

Income Tax

Income Tax is a business tax levied on the gross income of businesses for every income year. The taxable income includes profit from sales, dividends, capital gains, interest, and other income.

You can claim an immediate deduction for most expenditures directly related to your assessable income.

As an employer, you’re also responsible for withholding income taxes from your employees’ salaries.

To compute for income tax, deduct allowable expenses and deductions from your assessable income. The remaining amount is taxed at the applicable income tax rate.

Keeping accurate financial records and working with an accountant ensures you pay the correct amount of income tax.

Fringe Benefits Tax

FBT must be paid on non-cash benefits provided by employers to their employees and associates for the taxable period. 

Fringe benefits include company cars, health insurance, and gym memberships.  Fringe benefits can be claimed as a deduction for the income year.

Payroll Tax

Payroll Tax is a state-imposed business tax on wages paid by employers. If your total wages exceed the threshold, you pay tax on the excess amount.

Different states have varying thresholds and rates. So it’s essential to be aware of the specific regulations in your location.

Dividends Tax

Dividends Tax, or imputation credits, affect shareholders when companies issue dividends to shareholders or employees.

Shareholders report the dividends’ grossed-up amount and the imputation credits in their tax returns.

Stamp Duty

Stamp Duty is imposed on the company when it purchases property, insurance policies, or makes certain business agreements. 

Rates and exemptions vary across states but are usually 3-4%. Businesses must be aware of the applicable stamp duty laws in their location.

Customs Duty

Customs Duty is important if your business involves importing goods. Importers are required to pay customs duty, calculated based on the customs value of the goods. 

Companies involved in international trade may want to understand customs duty regulations to ensure smooth operations.

Land Tax

Land Tax applies to landowners in Australia. It’s calculated based on the unimproved value of the land. If your property is within your business premises, but you don’t earn income from it, land taxes must still be paid. 

Different states have different thresholds and rates. If the total value of your land exceeds your state’s threshold, you pay this specific business tax on the excess amount.

Tax Deductions

For tax purposes, a tax deduction can be made for eligible business expenditures you incur for earning your assessable income. These include the following.

• Daily operating expenses
• Payments made for the purchase of products or services
• Certain capital expenditures (for example: cost of depreciating assets)
• Payments related to protecting employees from safety hazards (for example, costs from COVID-19 protection)

You are able to claim an allowable deduction to income if:

• The expense was incurred for business purposes, not for private use.
• If the expenditure was used privately and for business, you can only claim the extent of the business’ share and not the full cost.
• You must provide proof.

You cannot claim deductions on the following:

• GST credits if you have claimed them on your business activity statement
• Depreciation of assets delivered, installed, ready for use, or improved after 30 June 2023
• Entertainment expenditures
• Domestic expenses used for private purposes (for example: purchase of diapers for children)
• Expenses from earning income that isn’t assessable

Potential Tax Concessions

A small business with less than $10 million annual turnover can avail of the following concessions from the ATO.

Lower Company Tax Rate

The full company tax rate is 30%. However, if your small business is a base rate entity, you can avail of a lower company tax rate. The lower company tax rate for a base rate entity is 25%.

To claim the lower company tax rate, a base rate entity must have an aggregated turnover less than the threshold for that income year. 

You should also only have 80% or less of your assessable income as base rate entity passive income. This includes income from interest, royalties, or rent.

It’s possible for the lower company tax rate and eligibility requirements to change. You may also check the ATO website for updates on company tax rates.

Pay As You Go (PAYG) Withholding

As an employer, you need to withhold a certain amount when making payments to employees, contractors, and businesses that don’t quote their Australian business number (ABN) and send it to the ATO.

The PAYG withholding prevents workers from having large amounts to pay at the end of the financial year, which could lead to possible debt.

Eligibility Requirements for Concessions

There are varying eligibility requirements for different concessions. Companies may want to check their eligibility before applying.

Eligible businesses can claim CGT concessions if they have an aggregated turnover of less than $2 million.

For small business partnerships, the partnership, not the individual partner, must be the CGT small business entity.

To learn whether you’re a CGT small business entity for the current year, determine whether your:

• aggregated turnover for the previous income year was less than $2 million.
• actual aggregated turnover is less than $2 million at the end of the income year.

Conclusion

Staying compliant with Australian business tax laws is essential for the financial health and longevity of your business, whether you’re a base rate entity or a larger business.

To stay on top of your business tax, you may want to keep records meticulously and seek professional advice when needed. As the deadline approaches, we hope you’re prepared.