Taxation is likely the most loathed of conversation topics. Far from the polarising matters of religion and political fervour, it appears to unite the wider population in collective disdain as ‘there is no such thing as a good tax’, right
Turn your mind to the current situation in Greece, picture pensioners lining the footpaths in despair as the banks remain closed and their livelihoods in jeopardy. Picture the former finance minister, Yanis Varoufakis riding away from his financial mismanagement on a scooter down the crowded streets of Athens (or his Voldemort caricature). Of course, if you can’t imagine these scenes, turn on the television, open a new tab in your browser…suddenly paying tax doesn’t seem so terrible.
The commencement of a new financial year is the best time to ensure that you are registered for the appropriate taxes. With an influx of great new company registrations keeping us busy since 1 July, it is also very important for new businesses to be aware of other financial and regulatory considerations.
This is not intended as an exhaustive list but more so a solid reference point for determining your company’s potential taxation responsibilities in the near future.
As a novice company, your first priority should be to apply for an ABN.
Australian Business Number (ABN)
Prior to the commencement of trade, Australian companies are required to register with the Australian Tax Office (ATO) by way of obtaining a Tax File Number (TFN) for the company and, in most cases, an ABN.
A company must have an ABN if:
It will earn over $75 000 per year (and must also register for GST)
It intends to issue invoices and receipts
You would like to open a company bank account
It plans to pay directors/employees a wage/salary (in which case, it will need to register for PAYG tax withholding)
Goods and Services Tax (GST)
Introduced in the Howard years, GST is experienced as a 10% addition to the price of most goods and services in Australia. A company registered for GST must pass these funds on the ATO at the end of each tax period, usually quarterly or per month (as elected).
Companies then have the benefit of claiming tax credits for any business supplies for which they have been charged the 10% GST. These are subtracted from the amount of GST payable to the ATO each tax period.
It is mandatory for companies earning more than $75 000 per annum to register for GST. Companies earning a total below this threshold can voluntarily register. Often companies that purchase a significant amount of GST applicable supplies want to claim these credits and therefore, register for GST.
Pay-As-You-Go Tax Withholding (PAYG)
Being PAYG registered allows you to withhold funds from a payment to meet tax obligations
If your company intends to employ staff and/or pay directors and shareholders a wage/salary, it must be PAYG registered.
The ATO will advise how often it requires PAYG payments to be made; this is usually half-yearly or quarterly.
Each State and Territory in Australia sets its own minimum threshold for payroll tax. It is assessed on the amount an employer pays employees each month. An employer is required to adhere to the payroll tax set by each state in which employees are based.
For example, in NSW the current monthly (31 days) threshold is $63 699, in Victoria it is $45 833 and in QLD it is $91 666.
Check with the Office of State Revenue in your State to register for Payroll Tax.
Fringe Benefits Tax
This tax is paid by employers based on the benefits provided to employees that usually fall outside of the salary package (but can be included within it). Fringe benefits may comprise company cars, day care, educational funding, profit sharing, private health insurance or entertainment as examples.
You can elect to register for fringe benefits tax as part of your ABN application with EasyCompanies. Alternatively, you can register directly with the ATO. The fringe benefits tax year extends from 1 April to 31 March.
Fuel Tax Credits
Essentially, registration for this tax entitles you to a credit for the fuel tax, usually experienced as a customs or excise tax, included in the price of the fuel you use in the conduct of your business. In most cases, companies operating heavy machinery, vehicles or equipment will be most likely to apply for fuel tax credits.
N.B. You must be registered for GST in order to apply for Fuel Tax Credits
Wine Equalisation Tax (WET)
This a tax generally paid by wine manufacturers, wholesalers and traders, applicable to the final wholesale transaction, for e.g. a wholesaler to a bottle shop or a winery to a restaurant. The destination is from where the direct consumer will purchase the wine.
It is determined from the value of wine as a 29% tax. This is usually added to the final price of the wine, so that the cost is laterally experienced.
WET is reported and paid in the same way as other business taxes, via the activity statement.
Luxury Car Tax
If you intend to import or sell luxury cars, then this tax may apply to you. LCT is a 33% tax payable by luxury car importers or vendors based on the price of luxury vehicles that exceeds the LCT threshold. For the 14/15 financial year the threshold was set at $61, 884. This tax only applies to the amount above the LCT threshold. For e.g. for a car valued at $70, 000, you would pay LCT on $8, 016.
N.B. You must be registered for GST in order to apply for/pay LCT
Capital Gains Tax
Capital Gains Tax is applicable to assets that have appreciated in value from the time of acquisition to that of sale.
For e.g. if you purchased a property for $600, 000 and sold it 5 years later for $900, 000, CGT is payable on the $300, 000 profit. The most common asset exempted from CGT is the family home/main residence.
Our recent blog post Capital Gains Tax for Small Businesses offers further explanation.
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.