Your Tax Rate Guide for Small Business in Australia
For any small business owner, it is crucial to have a clear understanding of your tax obligations as set out by the Australian Tax Office (ATO). Understanding the income tax requirements for all small businesses in Australia will be supportive for your business and for the unencumbered flow of your business activities. This tax rate guide will clearly set out what your obligations are for your type of business structure, whether it is a Company, Trust, Partnership, or a Sole Trader.
Business Activity Statements (BAS)
All Business Activity Statements are to be submitted quarterly to the Australian Tax Office. This is legally required by the ATO and is essential when your small business reaches the income level that requires it to be registered for GST (Goods and Services Tax). If your business or any other enterprise has an annual turnover of $75,000 and therefore registered for GST, you are required to submit a BAS.
Those whose business operation is as a Sole Trader are also required to register for GST. This generally takes place when the business has met the prescribed yearly turnover of $75,000, or when it is forecast that this amount will be achieved during the financial year. A not-for-profit organisation whose GST income reaches $150,000 for the year will also need to register, however this type of business is not required to submit a Business Activity Statement unless specifically requested by the ATO (Australian Tax Office).
Business Activity Statements need to be completed for the purpose of:
- reporting and paying the amount of GST the business has collected over the assigned period.
- claiming any GST credits that the business has accrued.
The dates all Business Activity Statements are due are:
- 28 April: Your BAS for January to March
- 28 July: Your BAS for April to June
- 28 October: Your BAS for July to September
- 28 February: Your BAS for October to December
Registering for Goods and Services Tax – GST
Before you are able to register your business for the standard Goods and Services Tax (GST), you will need to have an Australian Business Number (ABN). This ABN is available upon registering your business name or at a later date. Your tax professional is here to support you with this registration process.
It is also necessary to:
- work out whether the sales from your business operations are subject to GST. If that is so, you will then include the amount of the GST in the price of these sales. There may be some sales that are exempt from GST. Your tax professional will be able to advise you if this is the case.
- save the GST into a separate account as you collect it so when it is due to be paid to the ATO it is available.
What is the rate of GST in Australia?
GST (Goods and Services Tax) is a federal tax of 10% which is levied on most goods and services sold throughout Australia. Businesses registered for GST should add this 10% onto the cost of their goods and services in order to pay the tax that will be due.
Goods and Services charges that have been accrued as a business expense resulting from your business offering its goods or services for sale, are able to be claimed back in the form of a credit. To claim any GST Credits due to your business you must be registered for GST. Your tax professional will be able to support you with understanding this process.
In the tax system known as Pay As You Go (PAYG) deductions are made from the gross wages paid to any staff the business employs as well as company directors and office holders. This is a withholding tax that accrues from these deductions, which is then paid directly to the ATO at designated times during the year.
Tax Rates for Small Businesses in Australia
The definition of a Small Business
In Australia, a business is considered to be small if its annual turnover is $10 million or less. These businesses can be run under different structures which include a company, a trust, a partnership, or a sole trader. As the owner of a small business, you will be required to pay business income tax on an annual basis. If your business’s annual turnover is under $10 million, you will pay a reduced rate of 26% for the 2020/21 financial year. This rate will reduce to 25% for the 2021/22 financial year instead of the full rate of 30%. This rate is applicable for those companies with a larger turnover.
Up to and including the 2019/20 tax year, the tax rate for small businesses had been 27.5% The reduced tax rates quoted above only apply to the companies that, together with all their associated entities, have a combined annual turnover of $50 million or less.
If you operate your business as a sole trader, the tax you pay will be based on the current individual income rate, which has a tax-free threshold of $18,200. This is because a sole trader business structure is taxed as part of your own personal annual income. You may not be required to submit a business activity statement (BAS), but you will lodge an individual tax return with the ATO instead.
Your Business’s Income Tax Obligations
There are some small businesses in Australia that will also have income tax obligations where a percentage of their income is payable in addition to the GST and other requirements of their BAS. Your tax obligations here will depend on the type of company structure you have set up and whether you are a sole trader or you own the company.
This type of tax may be relevant to your small business and will depend on whether the total wage bill for your business exceeds the threshold determined by the state your business operates in. Payroll tax thresholds must be observed by sole traders as their staff can be employed under this business structure.
Working with your Accountant
Having all the accounts of your business in order, the bookkeeping up to date, and all relevant records securely retained when running your small business will ensure that the completion of your tax obligations runs smoothly. Helping your accountant to help you will definitely support you and your on-going business.
Tips for keeping your Accountant up to date.
- Ensure that you communicate any changes in your business structure or to the operation of the business without delay.
- Recording everything either on paper or electronically using a platform such as Xero or QuickBooks will provide your accountant all the information they may need at certain times.
- Regular communication between your bookkeeper and your accountant is essential so that they are on the same page.
- Specify the support you require for running your business as early as possible. Are you needing just your Tax Return done? Or are you needing all that they have to offer including Tax Planning, Business Advisory, Structuring/Set-up Advice and Bookkeeping? Ask your financial advisor or your accountant if you are unsure as to what your business needs will be.
It is highly recommended to use the services of an accountant who understands the needs of your small businesses. If you take this approach, offsets, and the process of claiming deductions can be maximised, offering your business more value for money. A tax professional can help to address all your tax concerns and find tax breaks that are not generally known.
Tax changes as a result of Covid-19
As a result of the current business climate, legislation is constantly changing so it is prudent to keep apprized of the latest changes. If you are unsure of any of any of these changes, ensure that you consult your trusted financial advisor or your accountant. In some cases, small businesses in Australia are now eligible for refunds and grants. Take the time to discuss this with your tax consultant in case your small business qualifies for this type of financial support.
Should you require any additional assistance please don’t hesitate to contact us.
Disclaimer: the information contained in this article is for general information purposes only and in no event will Taxopia or its affiliated entities be held liable for any loss or damage caused through the use of this information. Independent advice is recommended for all individual circumstances. Data and specifications included correct as of June 2021.