Posted by Cedric Joshua Martinez
Jan 24, 2017
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ensure a successful future, your business needs to prepare for every possibility - and that’s only possible by knowing what lies ahead. It would be like packing swimming trunks on a mountain climb—sure, you may find a use for it eventually, but completely miss the essential tools. Likewise, when preparing your business from the ground up, you need to know what you will encounter. In this blog post, the focus is on taxes and the laws surrounding it.
Before we get into more detail regarding tax laws, it’s important to learn more about your business. Specifically, what structure does your business fall under? The Australian government recognises 4 common types:
|
Sole Trader |
A single person controls the business. |
|
Company |
Where the business is considered a separate entity from the person in control. |
|
Partnership |
The same as Sole Trader, but with two or more people in control. |
|
Trust |
Where control is given to someone other than the owner. |
This is important to know because it determines what taxes you need to pay. With that out of the way, let’s get down to business.
1. Income Tax and Capital Gains Tax (CGT)
As you may have guessed, these are the taxes paid whenever your business earns from your income or the sale of capital respectively. These two were put together because CGT is usually considered a part of income tax, rather than a separate requirement.
2. Goods and Services Tax
Most products and services traded in the Australian market must go through a value-added tax of 10%. The exception to this? Companies that are not registered under GST. However, you are required to do so if your turnover is above a minimum amount ($75,000 per annum, as of this writing).
While it is unlikely for a startup to reach that amount in their first years (bravo to you if you do), you are still free to register if you choose to do so. Either way, you will eventually have to deal with this tax law down the line.
3. Payroll Tax
Do you have employees, and do you pay them beyond the tax exemption threshold? If you answered yes to both questions, then this should be on your watchlist. We have the table below to help distinguish the threshold and tax rates of states or territories.
|
State/Territory |
Monthly threshold |
Annual threshold |
Rate |
|
Australian Capital Territory |
$2,000,000 |
$166,166.16 |
6.85% |
|
New South Wales |
$750,000 |
$57,534 (28-day month) $61,644 (30-day month) $63,699 (31-day month) |
5.45% |
|
Northern Territory |
$1,500,000 |
$125,000 |
5.50% |
|
Queensland |
$1,100,100 |
$91,666 |
4.75% |
|
South Australia |
$600,000 |
$50,000 |
4.95% |
|
Tasmania |
$1,250,000 |
$95,890 (28-day month) $102,740 (30-day month) $106,164 (31-day month) |
6.1% |
|
Victoria |
$575,000 |
$47,916 |
4.85% |
|
Western Australia |
$850,000 $850,000 - $7.5 million (diminishing threshold) ≥ $7.5 million (no threshold granted) |
$70,833 |
5.5% |
4. Company Tax
This is one of the most obvious reasons why your business’s structure dictates which taxes you should pay. As the name implies, this tax is set by the Australian Tax Office (ATO) for both local and non-resident companies. Both calculate using the same rates and use Australian money.
The rates vary when it comes to your business structure or industry. For example, life insurance companies will see dramatically different rates than non-profit companies. If you would like to know more, follow this link to the ATO website for more information.
5. Superannuation
This is the government’s retirement program, where each employee accrues funds in order to have income once they retire. You are required to pay these at least four times each year and on time—or be penalised. The amount is dependent on how much they earn during their regular work hours. In a sole trader or partnership structure, you are not required to pay super for yourself, but you can still choose to do so.
Deductions and offsets
While technically not a tax law, it can indirectly affect the amount you pay in a good way. Whenever you spend money on your business, you are able to record this amount as a tax deduction and pay less in your income taxes. Here are a few examples of what is included in deductions:
- Rent or lease-payments
- Telephone and internet expenses
- Bank fees and charges
- Tools and other equipment
Tax offsets also reduce the amount of tax you pay—potentially to zero. The difference is that they’re dependent on government programs rather than your specific actions. Examples include health insurance, government benefits, and foreign income tax offset.
