Owning a business can be an enjoyable and rewarding experience and it is an idea many Australians are seduced by. It seems to offer a perfect life: no boss to answer to, significant potential earnings and the joy of creating your product offering. But it’s not all kittens and roses – take off the spectacles and you’ll soon see a mountain of paperwork in front of you. That’s right, at tax time you’ll have to deal with the authorities. But you don’t have to take it on alone – here’s some pointers from Investor Buddy.
ABNs, GST, Tax File Numbers and other obligations
Okay, so there’s a bit of red tape to get through – you already know that. Let’s go over the basics:
- ABN – Every business needs an Australian Business Number. You can apply for this through the Australian Taxation Office (ATO).
- Tax File Number - Individuals in business can use their tax file number but businesses, trusts and companies need a separate TFN from the ATO.
- Goods and Services Tax – If you’re running a small business you must register for and collect GST of 10 percent if your turnover is more than $75,000 annually or $150,000 if you are a non-profit organisation. For sole traders, the figure is $50,000.
- PAYG Withholding – You must register for this if you make payments you have to withhold from, for example in a situation where you pay salaries.
- Fringe Benefits – You need to register if you provide benefits to employees and have to pay fringe benefits tax.
- Fuel Tax Credits – You might be able to claim for certain eligible activities. You’ll also have to be registered for GST for this.
Business activity statement
The BAS is the single form you use to report your business tax entitlements and obligations, including input tax credits for GST included in the price you pay for purchases. Legally, anyone charging for advice about this must be a registered tax agent.
Business needs claimed on tax
If you are running a business of any size the ATO allows you to claim, in full or in part, the tax paid out on business expenses.
During the tax year, ordinary and necessary expenses which your business could not remain competitive without are claimable as deductions. To claim, present your accountant or the ATO with proof that you paid or are committed to spending the money and that it is purely business-related.
Further information
An indispensable guide for small businesses is Tax Tips For Small Businesses available from the ATO. It’s a useful little booklet that contains information about everything you will need to know – from business income tax and common deductions to record keeping. You can even download it for free if you visit their website.
Record keeping is essential, and, the ATO can even offer free software to help. See www.ato.gov.au/rsf/business for software that can assist you come tax time. If you want to be fully briefed, you can enrol in a tax basics seminar for new business owners. Alternatively, find a registered accountant who comes recommended.
There are also a number of online communities of small business owners sharing advice – check out www.flyingsolo.com.au.
