Australian Small Business Tax Advice

No matter where in the globe they reside, Australian citizens are required to submit tax returns and pay taxes on their income. However, when completing your tax return for Australia, there are a few things you need to keep in mind, especially if you are currently working and residing outside of Australia.

This blog article will offer an overview of the fundamentals of Australian tax legislation as well as some helpful hints for completing your tax return. In addition, continuing reading can provide beneficial guidance if you just immigrated to Australia or simply need a refresher on Australian tax regulations.

Are you a citizen of Australia or a permanent resident here? If this is the case, it is imperative that you are aware of the tax obligations that are placed on you. This tutorial will offer an overview of the many sorts of taxes you can be required to pay, as well as some suggestions for lowering the amount of money you owe in taxes. Continue reading if you want to find out everything you need to know about Australian taxation, regardless of whether this is your first time filing taxes, or you are just looking for a refresher.

Taxation Implications For Small Businesses

There are a few essential tax components that small businesses need to be aware of in order to comply with the law. These components are outlined in Australia's current taxation legislation, the Income Tax Assessment Act 1936 (Cth) (the "Act"), as well as the Fringe Benefits Tax Assessment Act 1986 (Cth), which is used to tax non-cash benefits received. Both of these pieces of legislation can be found in the Commonwealth of Australia. These constituents can be organised into a variety of groups for easier comprehension.

In addition, the laws that establish the administrative components of Australia's taxation regime may be found in the Taxation Administration Act 1953 (Cth), which was passed in the year 1953. These administrative components cover a wide range of topics, including taxation objections and reviews, as well as appeals filed under a variety of systems for collecting taxes.

The comprehensive A New Tax System (Goods and Services Tax) Act 1999 (Cth) and the A New System (Goods and Services Tax) Administration Act 1999 (Cth), the legislative frameworks that established the Goods and Services Tax, are obviously also applicable to Australia (also known as the "GST"). These two laws were both adopted in 1999.

Another distinguishing aspect of Australia's taxes system is the amount of regulatory guidelines that the Commissioner for Taxation gives. These rules provide direction to attorneys with relation to tax rulings, tax determinations, miscellaneous tax judgments, practise statements, Australian Taxation Office ('ATO') interpretation decisions, product rulings, and class rulings.

As a small business owner, your obligations regarding taxable revenue should be your first priority. Your remaining assessable income is used to calculate your taxable income after any applicable deductions are subtracted. Additionally, a variety of currently accessible tax deductions and offsets may be available to your business. Lower tax payments may be necessary as a result of these deductions and offsets.

We regularly provide businesses with assistance in determining whether or not a particular source of income or asset is subject to the Australian taxation law regime. This assistance includes determining whether or not a particular asset has crystallised ("realised") in accordance with the legislation.

People must recognise that a source of income that could be considered a mere "gift" or a windfall gain (such as a prise from a competition or earnings from gambling, provided that it is not the person's vocation) is not an income as defined by tax law. People need to be aware of this. People must therefore understand that a source of money that can be considered to be merely a "gift" or a windfall gain is not a source of income. This is due to the fact that such a source of income is not legitimate.

Contributions to capital and capital gain are two examples of things that aren't considered to constitute income. But it's important to remember that any profits made from the sale of assets are subject to the tax on capital gains (often abbreviated as CGT).

A person's salary, wages, bonuses, tips, overtime, annual and long service leave payments, commissions, and director's fees are all examples of income, as is any other amount earned as a product or incident of their employment or as a reward for services rendered. Therefore, as a general rule, any amount that is earned in this manner is considered income.

Note that for tax reasons, dividends, interest, rent, and any royalties are included in the category of regular income. Income earned from keeping capital assets is considered ordinary income.

The ATO receives tax instalments that have been taken from a person's gross salary or earnings through the Pay As You Go (PAYG) system. These payments may be seen on a group certificate that has been issued. When an organisation has personnel working for them, they are required to comply with PAYG withholding duties, which means that a certain amount must be withheld from their employees' salaries and earnings. This sum must be paid to the government.

Taxation For Small Businesses

There are several aspects of taxation that our customers need assistance assessing, and our attorneys are here to provide that assistance. Some sources of taxation legislation are found at the state level in the applicable jurisdiction, while others are managed at the federal level. The income tax, which is a federal tax that is charged on the taxable income, should be the first thing that is considered.

The capital gains tax, sometimes known as the CGT, is an income tax that must be paid on all assessable capital gains. In most cases, a business is subject to CGT if it realises a capital gain or loss as a result of the sale of capital assets. These capital assets can include any vehicles owned by the company, as well as plant and equipment that is utilised in the operation of the business to produce goods or provide services.

It is important to keep in mind that a gain or loss in capital can also be realised via the sale of business assets such as goodwill, business licences, and business premises. The realisation of a capital gains tax (CGT) occurs most frequently when a capital asset is sold; nonetheless, small firms should be familiar with the full scope of CGT occurrences.

If it is an employer, a small firm that gives its workers or associates perks of any kind is required to file and pay the Fringe Benefits Tax, abbreviated as FBT. Examples of common taxable income items include giving an employee a car or paying for costs that are not directly linked to the job. In order to fulfil the obligations for record-keeping and reporting that pertain to your company, you, as an employer, should maintain separate FBT records.

The Goods and Services Tax (GST), a consumption-based tax with a uniform rate of ten percent applied to the general public, is an additional factor that companies must consider. Owners of small enterprises must have a solid understanding of GST exemptions (such as fresh food, certain exports and medical supplies).

Even real estate, in some circumstances, will be liable to GST; this is particularly the case for the sale of commercial property (through the residential property, businesses premises sold as part of a going concern, and rural property are generally exempt).

As the operator of a business, you may be eligible to claim a refund for the GST attached to the items you purchased to provide the consumers with the goods or services they received in the course of their business.

It is a legal necessity that your company register for the Goods and Services Tax (GST) if the current turnover of your firm for GST is more than $75,000. When a business registers for the Goods and Services Tax (GST), they take on additional responsibilities, one of which is to submit a Business Activity Statement to the Australian Taxation Office (ATO) every three months. After that, the ATO must be presented with the collected GST amounts.

As the owner of a company, you are responsible for several tax-related tasks in addition to the taxes itself. For instance, any company that owes taxes is required to keep records of the financial dealings that occur within the company's normal course of business.

In its capacity as a taxpaying entity, it is the duty of the company to ensure that sufficient records are kept as evidence of both the revenue received and the costs incurred as a result of the company's operations. These data are then used to submit to the ATO the various taxes a business must account for, such as income tax, GST, PAYG withholding, and FTB.

When a certain number of dollars in wages are achieved, a company is required by law to withhold and pay payroll tax on the earnings provided to its employees. The gross value of fringe benefits, as well as wages, allowances, director responsibilities, and superannuation, are all subject to payroll tax.

The way in which a firm puts its staff to work (whether as employees or as independent contractors) has the potential to have a considerable impact on the amount of tax that that company must pay. Therefore, conferring with knowledgeable business attorneys about the positives and negatives associated with employing individuals under either structure is worthwhile.

There are also a number of payroll tax exemptions for certain contracts, and after we have received your enquiry about this topic, our practice will be able to provide you with guidance.

When an organisation transfers "dutiable property," such as real estate, shares in a company or another business, a motor vehicle, a lease, a mortgage, or even an insurance policy, the company is responsible for paying transfer duty, which was historically known as stamp duty.

The administration of transfer duty occurs at the state level, and each jurisdiction is responsible for setting its own transfer duty rates. The impact of land tax, which is a levy levied by the state and paid annually by some property owners depending on the value of their land, is another factor that certain companies will need to take into consideration.

Goods And Services Tax (GST)

The Federal government levies the Goods and Services Tax (GST) at a rate of ten percent, giving the income collected to the state governments. The Goods and Services Tax (GST) is a value-added tax (VAT) that is levied at each stage of the production and marketing chain. It applies to the vast majority of goods and services, and registered vendors can earn credits for the Goods and Services Tax (GST) on inputs they purchase to create taxable supply.

Products that are "GST-free" (the equivalent of "zero-rated" in other VAT jurisdictions) and are not thus liable to the GST include food (with a few key exclusions), exports, the vast majority of health, medical, and educational supplies, and some other supplies. As a consequence of this, a registered provider of a GST-free supply is eligible to reclaim appropriate input tax credits, despite the fact that the supply does not incur any tax liability.

Residential rentals, the provision of residential premises for the second time or later, the vast majority of financial services, and certain other goods are considered to be "input-taxed" rather than "exempt" in other VAT countries and are thus not subject to GST. On the other hand, the supplier is unable to recoup any applicable input tax credits, with one notable exception: financial providers may claim a reduced input tax credit equal to 75% of the GST to pay for specific services.

Insurance for medical expenses is exempt from GST. Input taxes are applied to life insurance policies. Taxes are applied to general insurance. There is a possibility that reverse charges will apply to any services or rights that are offered from offshore locations. The recipient is required to be registered or is registered themselves, and they utilise the supply wholly or in part for a supply that does not qualify for credit.

The Goods and Services Tax (GST) applies to international sales of digital items and services brought into Australia by consumers. This legislation guarantees that digital products and other imported services from foreign businesses that are delivered to Australian customers are subject to the Goods and Services Tax (GST). The Goods and Services Tax (GST) must be registered for, collected from, and remitted by non-resident providers that sell digital goods and services to customers in Australia.

The manner in which the regulations of Australia's GST apply to all cross-border supplies that involve non-resident firms works to guarantee that non-resident enterprises are not required to participate in Australia's GST system unless it is absolutely necessary for them to do so. This includes turning off the GST obligation for some supply made between non-residents and extending the GST-free regulations to certain supplies made to non-residents. Additionally, this includes switching off the GST liability for certain supplies made between non-residents.

Double taxation of digital currencies is avoided by ensuring that the handling of supplies of digital currency and supply of money under the GST is consistent with one another.

Certain low-value items, defined as those with a value of AUD 1,000 or less, acquired by customers outside of Australia and brought into the country are subject to GST.

Fringe Benefits Tax (FBT)

The Federal Government charges the Fringe Benefits Tax (FBT) on employers at the rate of 47 percent of the "grossed-up value" of non-salary and wage fringe benefits that are supplied to workers (and the employee's colleagues) by the employer or associates of the employee. The value is rounded up to its full extent in order to maintain tax neutrality between the provision of benefits and the payment of monetary compensation.

For the most part, FBT can be deducted from an individual's income tax. However, there are a few exceptions to the FBT, the most common of which are some small perks, dwelling in a remote place under specific conditions, and certain relocation expenditures. In addition, there are some lenient valuation standards, most notably for motor vehicles and special living-away-from-home advantages. These regulations apply to certain benefits.

Payroll Tax

States and territories have levied payroll taxes on employers (broadly defined). The laws governing payroll taxes in each of the different jurisdictions have been standardised. Despite this, there are still certain distinctions, the most notable of which are the tax rates and the criteria for exempting firms whose annual payroll is below a specific amount after considering the grouping laws.

For instance, the rate for the year that concluded on June 30th, 2022, in the state of New South Wales is 4.85 percent, and the yearly exemption barrier is set at 1,200,000 Australian Dollars. The annual exemption level in Victoria is AUD 700,000, and the general rate for the year that ended on June 30, 2022, in Victoria is 4.85 percent (with the exception of the rate for regional Victorian companies, which is 1.2125 percent). In the domains of the many other states and territories, there is a wide range of rates and thresholds.

Financial Incentives for Investment

The following are examples of incentives for the investment of capital:

• With the exception of mining rights and information obtained from a non-government third party, which must be claimed over the longer of 15 years or the asset's life, capital expenditures for the exploration for and extraction of petroleum and minerals, the rehabilitation of former mineral extraction sites, specific environmental protection activities, the establishment of specific "carbon sink" forests, certain expenditures of primary production.
• Investors can take advantage of a number of tax benefits to incentivize them to engage in venture capital. For instance, as long as the investments were held at risk for at least a year, non-resident pension funds that are tax-exempt in their home jurisdiction and that satisfies certain Australian registration requirements are exempt from income tax on the disposal of investments in certain Australian venture capital equity. Investments that have been held for at least a year are eligible for this exemption.

An exemption similar to that described above is available to other tax-exempt non-resident investors, including managed funds, venture capital fund-of-funds vehicles, and taxable non-residents who control less than 10% of a venture capital limited partnership.

When it comes to making investments in eligible venture capital enterprises, these investors may do so either through an Australian resident venture capital limited partnership or a non-resident venture capital limited partnership.

Venture money can only be used for particular types of investments, such as shares in firms and trusts. The Act contains specific requirements that define the nature of these investments and the characteristics that these businesses and trusts, as well as their investments, must possess.

• A non-refundable carry-forward tax offset, up to a maximum of 20% of the investment amount, is given to investors in an Australian Early Stage Innovation Company (ESIC), which is typically a company that is at an early stage of establishment to develop new or significantly improved innovations with the goal of commercialisation to generate an economic return. In addition, investors in an ESIC receive a capital gains tax exemption for shares held for a minimum of one year and a maximum of five years.
• In the context of venture capital, the phrase "early-stage venture capital limited partnership" is eligible for a tax credit (ESVCLP). The following criteria need to be satisfied for an ESVCLP to be considered eligible: the committed capital of the ESVCLP must be at least AUD 10 million but may not exceed AUD 200 million; the investments made need to fall within prescribed parameters as to size and proportion of total capital; and the ESVCLP needs to have an investment plan that has been approved by Innovation Australia. These are only some of the requirements that must be satisfied before moving on.

When all of the requirements for using the ESVCLP regulations are met, local and international partners can take advantage of the flow-through tax treatment that they provide. This indicates that the partners will not be responsible for paying taxes on any of the revenue or capital that they get from the business. On the other hand, given that the income is exempt from taxation, the investor is unable to deduct any losses from the investments they have made.

• If an approved offshore banking unit (OBU) in Australia earns taxable income through offshore banking transactions, then such income is subject to a rate of 10 percent tax. However, this rate only applies to assessments made for income years beginning before 2022/23. (note that the OBU regime has effectively been closed to new entrants since October 2018).
• Companies may be eligible for refundable tax offsets for certain expenditures incurred in Australia in producing certain film categories or undertaking certain post-production, digital, or special effects production activities regarding certain film categories. These offsets apply to certain expenditures incurred in Australia.

To be eligible for the discounts, a firm must either have an Australian resident owner or a non-resident owner who does business in Australia through a permanent establishment in Australia and be in possession of an Australian Business Number (ABN).

The fulfilment of a number of requirements, such as those pertaining to registration and a necessary minimum spend, is necessary for the offsets to be available. Therefore, depending on the qualities of the relevant film and the processes used, the offset rate might be anywhere between 16.5 and 40 percent.

• By giving up a portion of their tax losses from greenfield mineral exploration expenditure, eligible junior mineral exploration companies are able to generate tax credits for new shareholders with the help of the Junior Minerals Exploration Incentive (JMEI), which can then be distributed to shareholders. Since July 1, 2017, the programme has been in effect and will remain in effect through June 30, 2025.

Tips for Managing Your Costs as a Business Owner

It is very uncommon for business owners to focus more on profit and loss accounts rather than monitoring cash flow in their companies. And this might have really negative repercussions. For instance, the Australian Securities and Investments Commission (ASIC) recently published a study on corporate insolvencies in which they discovered that the primary reason for the failure of 44% of enterprises was either an inadequate cash flow or an excessive consumption of cash.

It would be ideal to have a consistent and dependable source of income flow. However, since your company's continued existence is contingent on it, it is essential that you keep an eye on all of your costs and ensure that you are continually taking measures to bring them down.

A cash flow statement is an effective instrument that can be used to monitor your company's incoming and outgoing cash flows over a specified period. Keeping accurate records of these transactions is an additional critical component of running a successful business.

1. Manage stock

Always keep an eye on the merchandise levels, and if any of it is moving slowly, replace it with something with a higher turnover rate. Square's free inventory management system enables users to obtain reports on their current stock levels, which is a very helpful feature. Additionally, a stock alert email informing you of low or out-of-stock products is emailed to you on a daily basis. This ensures that you are constantly aware of your current stock and what you need to buy.

1. Manage suppliers

You need to discover suppliers that will only give goods when you need it rather than filling regular orders regardless of how much you sell of their wares, and you need to do this as soon as possible. You will be able to reduce trash by doing this. When you already have the amounts you want, the last thing you want is for your storage to be filled with perishable goods just sitting there. In addition, make the most of the terms of trade your suppliers offer. These terms basically function as interest-free loans.

1. Point of Sale

You can better track of your day-to-day sales and costs thanks to your point-of-sale system. When used correctly, point-of-sale systems may not only save you time but also offer you with valuable information into how your organisation functions.

Square's point-of-sale (POS) software is completely free to use; there are no installation or ongoing costs. In addition, you will not be charged unless you actually make a payment. And in contrast to the services provided by other payment processors, when you use Square to make a payment, the funds will be deposited into your bank account on the very next business day.

1. Accountancy software

Always keep an eye on your expenses, and make use of accounting software to generate reports on your profits and losses. Two cloud-based accounting programmes interact with Square. These are Xero and QuickBooks Online. You should also be able to get assistance from your accountant or financial adviser in interpreting these reports and coming to judgments based on the information that they provide for you.

1. Pricing

A number of different elements determines price, but keeping cash flow objectives in mind will assist guide your decision-making process. For example, one of the potential causes for the cash flow issues that your company is experiencing might be poor profit margins.

The solution that many proprietors of businesses choose is to cut their prices; nevertheless, this tactic is not without its dangers. Even while it might potentially help you earn more sales in the near term, doing so puts your brand in danger of damage.

1. Forecasting

Unanticipated costs and expenses commonly cause cash flow issues for several small firms. For instance, there can be an issue that you haven't planned for in your budget, or there might be additional costs that you haven't accounted for in your company strategy. Always keep an eye on the market as well as the conditions of the economy in general. Create predictions for your cash flow, determine where you will be profitable, and at all times, have a strategy ready to implement in case something unexpected causes a decrease in your cash flow.

1. Streamline processes

If you have efficient systems in place, it will be easier to keep track of the money going into and coming out of your company. Make the most of the technology that has been developed specifically to assist you in managing the many aspects of your company.

By way of illustration, electronic invoicing, sometimes referred to as online invoicing, enables you to submit invoices straight from your computer or a point-of-sale programme. This type of invoicing is also known as "online invoicing." You will then be able to monitor the payment status so that you are constantly aware of what is still owed to you. This is a vital aspect of managing your cash flow.

1. Payment methods

Be inventive in your search for ways to cut costs; for instance, certain business transactions might be able to be processed in exchange for bartered goods or services, in which case both parties would benefit. Considering the advantages of allowing other payment methods, such as credit cards, may also make it possible for your debtors to pay off outstanding obligations more expediently.