Taxes are necessary to run a business, but are there any hidden taxes you may need to pay?
Small to medium businesses must comply with a range of tax obligations. Understanding the different business taxes and how they apply to you is essential to avoid penalties and maximise your tax benefits.
Are you aware of the different types of business taxes?
Different Types of Business Tax:
These are an overview. For more details relating to your circumstances, please contact your accountant.
Income tax is a tax on the taxable income of businesses and individuals. Business owners must lodge annual returns and pay tax on their assessable income. This is calculated by subtracting allowable deductions from their total revenue.
For example, if an SME earns $100,000 and incurs $40,000 in deductible expenses, its taxable income would be $60,000.
The tax rate and thresholds for businesses vary depending on their business structure and level of taxable income.
Payroll tax is a state-based tax that is levied on the wages paid by businesses to their employees.
The tax rate and threshold vary by state, and businesses with a payroll above the threshold must register and pay payroll tax to the relevant state revenue office.
For example, in Queensland, the threshold is $1.3 million per year. Therefore, SMEs only pay the tax rate of any payroll over this amount.
Capital Gains Tax (CGT)
CGT is a tax on the profit from selling a capital asset such as property, shares, and other investments.
SMEs may be eligible for a range of CGT concessions, including the small business CGT concessions, which provide an opportunity to reduce or eliminate the CGT liability on the sale of certain assets.
Fringe Benefits Tax (FBT)
FBT is a tax on the value of fringe benefits provided to employees, such as company cars, private health insurance, and entertainment expenses.
Businesses that provide fringe benefits to their employees must register for FBT and pay the ATO.
There is a range of exemptions and concessions available that can help reduce the FBT liability for SMEs.
Pay as You Go (PAYG) Withholding
PAYG withholding is a system for businesses to withhold tax from employee wages and remit it to the ATO on their behalf. Companies are required to register for PAYG withholding if they have employees.
The amount of tax withheld is based on the employee’s taxable income and the relevant tax rates.
Pay as You Go (PAYG) Instalments
PAYG instalments are a system for businesses to pay their income tax in instalments throughout the year rather than in one lump sum at the end of the financial year.
Businesses that earn above a certain threshold are required to pay PAYG instalments. The instalment amount is based on the business’s previous year’s tax liability, and companies make quarterly payments.
Goods and Services Tax (GST)
GST is a value-added tax levied on most goods and services sold in Australia. Businesses with a turnover of $75,000 or more must register for GST and charge GST on their taxable supplies.
Some exemptions and concessions are available, such as small business concessions, which can help reduce the GST liability for businesses.
Fuel Tax Credits
Fuel tax credits refund the tax paid on fuel used in business operations. Businesses registered for GST using fuel in their operations can claim fuel tax credits.
Land tax is a tax on the value of land owned by businesses and individuals. Land tax is state-based, and the rate and threshold vary by state.
For example, in New South Wales, the land tax threshold for individuals is $734,000, and the rate starts at 1.6% for land values above the threshold.
Industry Specific Taxes
Wine Equalisation Tax (WET)
WET is a tax on the wholesale value of wine. Businesses that produce, import or wholesale wine are required to register for WET and pay the tax to the ATO.
Some exemptions and concessions are available for small wine producers and certain types of wine.
Luxury Car Tax (LCT)
LCT is a tax on luxury cars sold or imported into Australia. The LCT applies to vehicles above a particular value and not meeting specific fuel efficiency standards. Businesses that purchase or import luxury cars valued at more than $71,849 may be subject to luxury car tax.
Know your business’s tax obligations.
Understanding these taxes and complying with the relevant regulations is vital to running a successful business.
By understanding your tax obligations, you can ensure that you comply with tax laws, maximise your tax benefits, and avoid penalties.
It also allows you to budget accordingly, as unexpected bills won’t hit you.
Our tax professionals deeply understand the requirements and how to avoid liability. They can ensure you meet your tax obligations and maximise your benefits.