Published on 23/10/2020 by Any Business.Com.Au

What Are My Tax Obligations As a Business Owner?

As a business owner and most likely an employer, you have tax obligations that you need to meet to ensure you and your employees pay the right amount of tax, and you're operating your business within Australian law.

When you start a new business, understanding and meeting your obligations to the Australian Tax Office (ATO) can be overwhelming. We've compiled this guide to get you started and ease the stress of starting a business.

Your tax obligations will differ depending on your business structure, your turnover and in some cases the kind of materials you use or your business produces. The ATO provides a large amount of resources you can read to better understand exactly what applies to your business.

We also recommend contacting a registered tax agent or business advisor who can give you a tailored hand in getting started and make sure you're on the right track for your business.

(Photo Credit: Dave Dugdale via Compfight cc)

Obtain a Tax File Number and Australian Business Number

One of the first things you'll need to do as a new business owner is to obtain a Tax File Number (TFN) and an Australian Business Number (ABN). Your TFN will register your business with the ATO and helps them administer your tax and identify your business within Australian government systems. If you're operating as a sole trader or in a partnership you won't need to register for a new TFN; instead you'll use your personal TFN.

While it's not necessary, it's recommended you apply for an Australian Business Number. An ABN will be your unique identifier on the Australian Business Register, and will simplify your taxation processes by allowing you to use a single Business Activity Statement, avoid Pay as You Go tax and claim Goods and Service Tax (GST) Credits.

Register for Goods and Services Tax

Whenever goods or services are sold in Australia, they're subject to GST. GST is included in the price of sales and so is paid the customer. When purchasing good and services as a business owner, you can claim credits for the GST included in the price of those purchases.

As a business you must collect GST from your customers and put it aside until it is due to the ATO. If you have a turnover of over $75,000 or you provide taxi travel, you must be registered for GST. You must also provide all customers with a Tax Invoice with their purchase and keep tax invoices you've been given for business purchases.

Pay As You Go (PAYG)

If you plan to employ people you'll need to use the Pay as You Go system, which lets you withhold income tax from your staff's pay, and pay it to the ATO on their behalf.

Any worker in Australia earning over $18,200 must pay income tax. As an employer, you're responsible for withholding the right amount of tax from your staff and paying it to the ATO when it's due. At the end of the financial year you'll need to issue your staff with PAYG summaries, which allows them to file their own individual tax return.

You can find out how much money to withhold from your staff using the Tax Withheld Calculator. You'll need your employees to fill in a Tax File declaration, a withholding declaration, and a Medicare levy declaration; they can be downloaded from the ATO website.

Pay Fringe Benefits Tax

A fringe benefit is a non-salary or non-wage payment you make to an employee. This could include a company car or mobile phone you expect your employee to use for business purposes, but which is also available to them for personal use after hours. A fringe benefit can also include free tickets to concerts or sporting events provided by the employer, gym memberships or even paying a child's school fees.

As an employer, you must pay a tax on the Fringe Benefits your employees receive. This can be up to 47% of the cost of the benefits, with the Medicare levy charged on top of this.

You also have to provide a summary of the fringe benefits your staff have received throughout the financial year and include the total cost of fringe benefits (minus staff contributions) on their PAYG statements.

Keep Proper Records

As one of your main responsibilities as a business owner, you can outsource record-keeping to a bookkeeper or accountant or do it yourself. Your books must be up to date and maintain records of your business income, profits and losses, expenses and pay to your staff.

All records will be useful at tax time to help you calculate how much tax you need to pay. Immaculate record-keeping is also important for ATO audits.

The simplest way to keep good records is to invest in accounting software for your business. Business IT provides a good starter's guide to selecting and properly using the right accounting software for your business.

The best thing about most computerised accounting systems is that they simplify the process of building reports and activity statements for the ATO; often the software can do it all for you. Check the software is enabled for Standard Business Reporting (SBR). This means the software works in cahoots with ATO systems.

How Do I Pay my Tax?

To pay your tax you'll need to lodge a Business Activity Statement (BAS) each reporting period. Your reporting period will be determined by the ATO depending on the size and structure of your business, and can either be monthly, quarterly or yearly.

Your BAS includes information about your total sales, GST, profits and losses, PAYG, fringe benefits tax and other taxes which may apply to your business. You can lodge your BAS online or in paper form, and most accounting software that is SBR enabled will automatically fill out your BAS for you.

Your BAS will help you calculate how much tax you need to pay to the ATO. The ATO also provides online calculators which can help you determine how much you need to pay in each period for each different form of tax which applies to your business.

The ATO provides a number of payment options, including BPAY, credit card, direct debit, or in person at an Australia Post outlet.

It's important you pay your tax correctly and on time each period so you don't accrue interest on the amount you owe. If you pay incorrectly, fail to accurately claim your sales and businesses expenses, or try to deceive the ATO with dodgy record-keeping you could face serious penalties.

If you're struggling to understand your obligations, or you're not sure exactly what you're supposed to do or pay, it's important you contact a professional accountant or business advisor who can help you out and keep you on track.

For more information on starting and running your business, read up on your legal considerations as a business owner and what licences you may need to obtain to run your business.

AnyBusiness.com.au

Mary is the founder of AnyBusiness.com.au. She has a degree in Business from Monash University and been helping showcase businesses for sale for over 10 years. In the course of running her own business and working daily with business owners and brokers she has developed a keen sense of the Australian market for businesses for sale and shares her knowledge on this blog and others such as female.com.au

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