Every business, small or large, needs to understand its tax obligations. Failing to meet tax obligations can lead to penalties and unnecessary stress. However, with the right support and knowledge, you can stay confident and compliant without feeling worried about ATO rules. In this blog post, you will learn what you must know and the mistakes that most business owners make regarding taxes.
Business Structures and Key Tax Obligations
Basically, a business structure:
- defines who runs and owns the business
- affects your registration and tax requirements
- affects your legal obligations and liabilities.
Here are the most common business structures in Australia:
- sole trader
- partnership
- company
- trust
Sole Trader
A sole trader is an individual who runs a business. It is the simplest way to operate a business. You can employ employees in your business, but you cannot employ yourself. Here are the key tax obligations you need to meet. As a sole trader, you:
- Use your individual tax file number when filing your tax return.
- Report all your income on your tax return.
- Are liable for an Australian Business Number and must use that ABN for all business activities.
- Need to register for GST if your annual GST turnover is $75,000 or more, you offer limousine, taxi, or ride-sourcing services, or you want to claim fuel tax credits.
- May have to file a BAS, for instance, if you are registered for GST, have employer obligations such as PAYG withholding, or have PAYG instalments.
- Pay tax on all your income, depending on your individual tax rate.
- Can claim a deduction for any personal super contributions.
Partnership
A partnership is an arrangement where two or more people operate a business together and share its profits or losses. In terms of tax obligations, a partnership:
- has its own TFN
- Lodges an annual partnership return that details all business income and deductions, as well as how the income or losses are distributed to the partners.
- Applies for an Australian Business Number (ABN) and uses it for all business activities.
- Registers for Goods and Services Tax (GST) if it meets any of the following criteria:
◦ Has an annual GST turnover of $75,000 or more ($150,000 for not-for-profit organisations).
◦ Provides taxi, limousine, or ride-sourcing services, regardless of GST turnover.
◦ Wishes to claim fuel tax credits. - Additionally, a partnership may be required to lodge Business Activity Statements (BAS) if it is registered for GST, has employer obligations such as Pay As You Go (PAYG) withholding, or has PAYG instalments.
- It’s important to note that a partnership itself does not pay tax. Instead, each partner reports their share of the net partnership income or loss on their individual tax return and is personally liable for any tax that may be owed on that income.
Company
A company has its own tax and superannuation obligations, is owned by its shareholders, and is run by its directors. Here are key tax obligations that a company needs to meet. A company:
- has its own tax and superannuation obligations
- needs to apply for its own TFN
- Must have an ABN if it is registered under the Corporations Act 2001
- Must register for GST if its annual turnover is $75,000 or more, provides taxi, limousine, or ride-sourcing services, regardless of GST turnover, and wishes to claim fuel tax credits.
- May be required to lodge Business Activity Statements (BAS) if it is registered for GST, has employer obligations such as Pay As You Go (PAYG) withholding, or has PAYG instalments.
- Owns the money that the business earns
- Must file an annual company tax return
Trust
A trust is an arrangement in which a person or other entity holds and manages property for the benefit of beneficiaries. A trust:
- needs to have its own TFN
- Files an annual trust tax return, which includes a statement showing how income was distributed.
- needs to apply for an ABN
- Must register for GST if its annual turnover is $75,000 or more, provides taxi, limousine, or ride-sourcing services, regardless of GST turnover, and wishes to claim fuel tax credits.
- May be required to lodge Business Activity Statements (BAS) if it is registered for GST, has employer obligations such as Pay As You Go (PAYG) withholding, or has PAYG instalments.
- Needs to pay super for eligible employees.
Conclusion
Understanding your business tax obligations can help you run your business smartly. To ensure you meet your business tax obligations, you can seek help from Trusted Tax Associates.
