Businesses use activity statements to pay and report various tax obligations, including FBT instalments, PAYG (instalments and withholding), GST, and related tax obligations. They also use activity statements to pay deferred company and superannuation fund instalments. Individuals use activity statements to pay quarterly PAYG instalments.
The ATO website provides instructions on how to complete sections of the activity statement:
- GST (Goods and Services Tax)
- PAYG (Pay As You Go) Instalments
- FBT (Fringe Benefit Tax)
- LCT (Luxury Car Tax)
- WET (Wine Equalisation Tax)
- Fuel Tax Credits
- PAYG (Pay As You Go) Withholding
If your annual turnover is less than $20 million, you can lodge your Business Activity Statement (BAS) monthly or quarterly. However, if your annual turnover is $20 million or more, you must lodge your Business Activity Statement and make payments electronically every month.
The Australian Business Number (ABN) provides a single identifier when dealing with the tax office or other government departments and agencies. You need an ABN when interacting with the ATO regarding:
- GST (e.g. to claim GST credits)
- The Diesel and Alternative Fuels Grants Scheme
- Luxury Car Tax
- Wine Equalisation Tax
- Applying for an endorsement as a deductible gift recipient
- Applying for an endorsement as an income tax exempt charity
To qualify for an ABN, you must be a company registered under Corporations Law in Australia or a business entity carrying on an enterprise in Australia. You will need an ABN if:
- Your GST turnover is $75, 000 or more
- You are a nonprofit organisation with a GST turnover of $150, 000 or more
- You need to be endorsed as a gift deductible recipient
- You need to be endorsed as an income tax exempt charity
The Uniform Capital Allowance (UCA) system provides a set of general rules that apply across a variety of depreciating assets and certain other expenditure. Simplified rules may apply in the case of small businesses.
The UCA system provides a mechanism that taxpayers can use to deduct certain capital expenditure over time, including expenditure on the acquisition of capital assets.
The effective life of a depreciating asset is limited and its value can reasonably be expected to decrease in value over its useful life. Land trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.
There are two options for calculating the decline in the value of an asset under the UCA system:
- Prime cost method – Decline is calculated as a % of the initial cost of the asset
- Diminishing value method – Decline for each income year is calculated on the balance of the asset’s cost that remains after the decline in value for previous income years has been considered
The ATO allows recalculation of the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate. An improvement to an asset that increases its cost by 10% or more in a year may result in an obligation to recalculate the effective life of the asset. The decline in value of certain depreciating assets with a cost or opening adjustable value of less than $1000 can be calculated through a low-value pool. The decline in value for depreciating assets in the pool is calculated at an annual diminishing value rate of 37.5%.
Capital gains tax (CGT) is the tax you pay on a capital gain. It is not a separate tax, but part of your income tax.
The most usual way to make a capital gain or loss is to sell assets like real estate, shares or managed fund investments.
Capital gains tax came into effect on 20 September 1985. All assets you have acquired since this date are subject to the CGT rules including options, rights and business goodwill (unless specific exclusions apply).
If you are an individual, some assets may be exempt from CGT, including:
- Your main residence
- Your car, motorcycle or similar vehicle
- Assets for personal use that you acquired for $10,000 or less
There are other exemptions, rollovers, and concessions that may allow you to ignore, defer or reduce your capital gain or capital loss. In some situations using the indexation and discount methods to calculate your capital gain can also reduce this.
RESIDENTS AND NONRESIDENTS
If you are an Australian resident, CGT applies to your assets anywhere in the world.
For foreign residents, CGT applies to taxable Australian property.
Customs duty is imposed at an equal rate on imported alcohol, tobacco, and petroleum to ensure imported and local goods are treated consistently. These goods are referred to as Excise Equivalent Goods (EEGs). There are specific obligations to consider when dealing with excisable goods and EEGs.
If you open a first home saver account, the ATO will add money to your account and tax your earnings at 15% to help you save for your first home. The more money you save, the more the government will contribute (up to a certain limit each year). The current contribution threshold on First Home Saver accounts is $5,500 which makes the maximum annual Government contribution an account holder can receive $935.
When you have a first home saver account you will need to keep the money in the account for a minimum period of time. Once that time has passed and you make the decision to buy or build your first home, you will have to withdraw all the money at once and close the account. You will then need to use the money as a deposit or to meet other costs you incur as a result of buying or building your first home.
To open a first home saver account, you must:
- Be between 18 and 65 years old
- Have a tax file number you can quote in your application
- Not have previously owned a home in Australia that has been your main residence
- Not have previously had a first home saver account
Fringe Benefits Tax (FBT) is paid on particular benefits employers provide to their employees or their employees’ associates instead of salary or wages. Benefits can be provided by an employer, an associate of an employer, or a third party by arrangement with an employer. An employee can be a former, current, or future employee.
FBT is separate from income tax and based on the taxable value of the various fringe benefits provided. The FBT year runs from 1 April – 31 March.
The following categories of fringe benefits apply, with specific valuation properties applicable to each category:
- Airline transport board – E.g. a meal
- Car – E.g. letting employees use a work vehicle for a private purpose
- Car parking
- Debt waiver
- Entertainment – E.g. food, drink, recreation
- Expense payment – E.g. reimbursing an expense incurred by an employee such as school fees
- Living-away-from-home allowance
- Loan – E.g. granting an employee a cheap loan
The following are NOT fringe benefits:
- Approved employee share acquisition schemes
- Employer contributions to complying superannuation funds
- Employment termination payments – Eg company car given or sold to employee when they leave
- Certain benefits provided by religious institutions to their religious practitioner
You can reduce the amount of FBT you pay by:
- Replacing fringe benefits with a cash salary
- Providing benefits that your employees would be entitled to claim as an income tax deduction if they had paid for the benefits themselves
- Providing benefits that are exempt from FBT
- Using employee contributions
Fuel schemes provide credits and grants to reduce the costs of some fuels or provide a benefit to encourage recycling of waste oils. There are various types of schemes:
- Fuel Tax Credits Program – Helps cut fuel costs by providing a credit for the fuel tax (excise duty) included in the price of fuel, when used for particular activities. Most businesses can claim fuel tax credits, although the rate varies according to activity. You must be registered for GST as well as fuel tax credits to claim fuel tax credits using your business activity statement (BAS).
- Cleaner Fuels Grants Scheme – Encourages making or importing fuels that have a lesser impact on the environment. Eligible cleaner fuels include biodiesel and renewable diesel, as well as low or ultra-low sulphur conventional fuels like low sulphur premium unleaded petrol (PULP) and ultra low sulphur diesel (ULSD).
- Energy Grants Credits Scheme – Provides a fuel grant for businesses using alternative fuels for road transport. You can’t claim an energy grant for diesel but you may be eligible for a fuel tax credit.
- Product Stewardship for Oil (PSO) Program – Supports recycling oil for environmental sustainability. This includes recycling used oil and using recycled oil.
Value shifts change the relationship between the market value and tax value of an asset. Most value shifts happen when parties don’t deal at the market value, causing one asset to decrease while the other increases. Value shifts occur in the form of:
- Indirect value shifting
- Direct value shifts on interests
- Direct value shifts by creating rights
Without a value-shifting regime in place there can be artificial losses and deferred gains. Where the General Value Shifting Regime (GVSR) applies, you may need to adjust the tax values of an interest affected by the value shift, or adjust a realised loss or gain. In some cases there may be an immediate capital gain.
In general, the GVSR does not apply to small value shifts or dealings within consolidated groups.
GST is a tax of 10% in Australia on most goods, services, and consumables. If you are a registered business, you need to pay GST on most goods and services you sell or supply.
Other registered businesses will include GST in the price of items you purchase for your business. You may be entitled to claim input tax credits from the ATO if you are registered for GST and the acquisitions are obtained for the purpose of carrying on your enterprise. Although the liability for paying GST rests with GST-registered entities, the end consumer bears the economic cost.
If you do not charge GST for sales but are entitled to claim input tax credits for GST included in the price you paid for supplies, the supplies will be GST-free. For an input tax sale you do not charge GST on the sale of the goods or services to your customers and you cannot claim input tax credits for the GST portion of your business expenses relating to the items acquired to make the supply.
The reporting periods for GST are called tax periods and can be quarterly or monthly. Quarterly tax periods are three months long, ending 30 September, 31 December, 31 March, and 30 June. Monthly tax periods end on the last day of each calendar month. Entities with an annual turnover of less than $20 million generally have quarterly tax periods, but can choose to have monthly tax periods. Entities with an annual turnover greater than $20 million are required to have monthly tax periods and lodge their activity statements electronically.
The rules for attributing GST payable and input tax credits to tax periods differ according to whether GST is accounted for on a cash or accrual basis. You can account for GST on a cash basis if you meet one of these requirements:
- Are a small business with an annual turnover of less than $2 million. This includes the turnover of your related entities.
- Are not running a business, but carrying on an enterprise with a GST turnover of $2 million or less.
- Account for income tax on a cash basis.
- Carry on an enterprise that the commissioner has determined can account for GST on a cash basis regardless of your GST turnover.
- Are an endorsed charitable institution regardless of your GST turnover.
- Are a trustee of an endorsed charitable fund, gift-deductible entity, or government school, regardless of your GST turnover.
Entities running an enterprise must register for GST if their annual turnover is at or above the registration turnover threshold of $75,000. This threshold is $150,000 for nonprofit organisations. Entities below this threshold can also register for GST. If they do, the registration must continue for 12 months. If you are not registered for GST, you cannot include GST on anything you sell or provide. You also cannot claim back any GST included in the price you pay for goods or services used in your business.
The imputation system provides a way for Australian corporate tax entities (entities taxed separately from their members) to pass on credit for income tax they have paid to their members. This prevents income tax being levied twice – once when the income is earned by the entity, and again when income is distributed to members. Corporate tax entities are taxed at the company tax rate (currently 30%).
The imputation system works by franking a distribution. The franking account is a record of franking credits and debits that arise in an income year. All corporate tax entities are required to maintain a franking account. Typically a franking credit would arise in the franking account when the corporate tax entity pays their income tax or receives a franked dividend. A franking debit would arise when the corporate tax entity pays a franked dividend or receives a refund of income tax it has paid.
Income tax is levied on taxable income, which is calculated as [assessable income] less [any allowable deductions]. Deductions include wages, cost of stock, rent, bad debts, and previous year losses.
You can use the tax tables to determine how much you are taxed.
Resident Tax Rates 2013-14
|Taxable income||Tax on this income|
|$0 – $18,200||$0|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $80,000||$3,572 plus 32.5c for each $1 over $37,000|
|$80,001 – $180,000||$17,547 plus 37c for each $1 over $80,000|
|$180,001 and over||$54,547 plus 45c for each $1 over $180,000|
Nonresident Tax Rates 2013-14
|Taxable income||Tax on this income|
|$0 – $80,000||32.5c for each $1|
|$80,001 – $180,000||$26,000 plus 37c for each $1 over $80,000|
|$180,001 and over||$63,000 plus 45c for each $1 over $180,000|
MORE: See the ATO website for more information on Individual Income Tax Rates.
A company is a distinct legal entity with its own income tax liability so a Company Tax Return must be completed for each company. A company’s income tax is calculated as a percentage of the taxable income the company earned during the financial year. The company tax rate is 30%.
A partnership running a business must complete a Partnership Tax Return to show all income earned and deductions claimed for expenses during the course of the business and how the profit or loss was shared between the partners. Each partner pays tax on their share of the partnership’s income so they must include their individual share of the net partnership profit or loss in their personal tax return.
Sole traders are not required to complete a separate return for their business. They use their personal income tax return to report their business income and deductions.
The Medicare Levy is a tax Australian residents pay to cover health care charges. It is payable on taxable income, in addition to income tax. Individuals and families on higher incomes who do not have an appropriate level of private hospital cover may have to pay the Medicare levy surcharge.
The Medicare Levy is usually calculated at 1.5% of your taxable income, however this rate can vary depending on individual circumstance. You may be exempt from the levy or it may be reduced if you have a low income or are a prescribed person.
Please note that from 1 July 2014, the government will increase the Medicare levy rate from 1.5 to 2% of taxable income for the 2014-15 income year and later income years.
A Medicare Levy Calculator is available on the ATO website to help you work out your financial obligation.
Eligible employees who have newborn or newly adopted children may get 18 weeks of funded pay at the National Minimum Wage. Full-time, part-time, casual, seasonal, contract, and self-employed workers may also be eligible.
To prepare your business for the Paid Parental Leave scheme, you can register for Centrelink Business Online Services.
Pay As You Go (PAYG) Instalments is a system for paying instalments during the income year towards your expected tax liability on your business and investment income. Your actual tax liability is worked out at the end of the income year when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.
The ATO will contact entities and individuals who are required to pay PAYG instalments, notifying them of their instalment rate. This is calculated according to information in the last assessed income tax return.
PAYG instalments are generally paid quarterly, however some taxpayers pay two instalments a year and some have an annual instalment option. The annual instalment is a single, lump sum payment of your PAYG liability for the year. For more information see the PAYG Annual Instalment Fact Sheet. If you are not eligible to pay an annual instalment, you can pay PAYG instalments quarterly. Each quarter the ATO will send you an activity statement. The due date for lodging this and paying any amounts due will be printed on the statement. This is also the case if you choose the 2-instalment option, which applies to some primary and special professionals (eg sports professionals and authors).
Some entities and individuals pay an instalment amount calculated by the ATO, but most companies work out their own instalment amount based on their instalment rate multiplied by their business and investment income. The main advantage of working out your own instalment amount is that your instalments are based on your income as you earn it, instead of a projection based on your previous tax situation.
You need to withhold payment amounts:
- From payments you make to other workers (e.g. contractors)
- From payments you make to other businesses if they don’t quote their ABN to you on an invoice or another document
- From payments you make to your company directors for their service to you
- If you run your business as a company
- If you have employees
- If you pay employees from another business
If you are an employer or run a business and withhold amounts from payments, you need to:
- Register for PAYG withholding
- Determine the status of your workers (if applicable)
- Familiarise yourself with the types of payments you need to withhold amounts from
- Determine the amounts to withhold
- Report and pay withheld amounts to the ATO
- Provide the ATO with payment summaries
- Lodge an annual report once each income year has ended
The ATO has a variety of rates tables, tax calculators, and other tools on the following topics:
- Capital Gains Tax
- Fringe Benefits Tax
- Fuel Tax Credits
- Income Tax
- PAYG Withholding
Small businesses with an annual turnover of less than $2 million may qualify for a range of tax concessions. If your business is eligible you can use the concessions that suit you. You may have to satisfy additional conditions and will need to check whether you qualify for the concessions each tax year.
Eligible businesses can use the concessions outlined in the table.
|CGT 15-year asset exemption||If you are 55 or older and retiring and your business has owned an asset for at least 15 years, you won’t pay capital gains tax when you sell the asset.|
|CGT 50% active asset reduction||If you have owned an asset to conduct your business you will only pay tax on 50% of the capital gain when you sell the asset.|
|CGT retirement exemption||There is CGT exemption on the sale of a business asset (up to a lifetime limit of $500,000). If you are under 55, money from the sale of the asset must be paid into a complying superannuation fund, or retirement savings account.|
|CGT rollover||If you sell a small business asset and buy a replacement, you can roll over your CGT liability to the value of the replacement asset. This means you won’t pay any CGT owing until you sell the replacement asset.|
|Simpler depreciation rules||You can usually pool your assets to make depreciation calculations easier. You can also claim an immediate deduction for most assets that cost less than $6,500.|
|Simpler trading stock rules||If the value of your trading stock has not increased or decreased by more than $5,000 over the year, you can choose whether or not to do an end-of-year stock take.|
|Immediate deduction for certain prepaid business expenses||You can claim an immediate deduction for prepaid business expenses if the payment covers a period of 12 months or less and ends in the following income year.|
|Entrepreneur’s tax offset (ETO)||If your business has less than $75,000 turnover, the entrepreneur’s tax offset might reduce the tax you owe by up to 25%. This has been abolished for the 2012/13 and subsequent income years|
|Accounting for GST on a cash basis||You don’t need to account for GST on a sale you make until you receive payment for the sale.|
|Annual apportionment of GST input tax credits||If you purchase items you use partly for private purposes, you can claim full GST credits for these on your activity statements. You can then make a single adjustment to account for the private use percentage at the end of the year.|
|Paying GST by instalments||You can pay GST by instalments the ATO calculates for you and can vary this amount each quarter if required.|
|FBT car parking exemption||In some cases you may be exempt from FBT for employee car parking.|
|PAYG instalments based on GDP amount||To save you working out how much you need to pay, as of 1 July 2009, a company or superannuation fund that is a small business entity can pay quarterly instalment amounts as calculated by the ATO based on their business and investment income in their most recently assessed tax return.|
Payroll tax is a state tax on the wages paid by employers when the total wages exemption threshold is exceeded. Exemption thresholds vary between states.
NOTE: Payroll tax is not the same as PAYG withholding tax collected by the ATO. PAYG is the tax deducted from an individual’s income and forwarded to the ATO.
The following organisations are generally exempt from payroll tax, provided specific qualifying conditions are met:
- Religious institutions
- Public benevolent institutions
- Public or nonprofit hospitals
- Nonprofit nongovernment schools
- Charitable organisations
All landowners, except those in the Northern Territory, may be liable for land tax. In the Australian Capital Territory land tax is levied on lessees under a Crown lease. Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds (excluding the ACT).
In some states, deductions and rebates are available, depending on how the land is used. Principal places of residence are generally exempt from land tax, however this depends on particular qualifying criteria (these vary between jurisdictions).
Land owned and used by the following types of organisations might be exempt from land tax:
- Nonprofit societies
- Clubs and associations
- Religious institutions
- Public benevolent institutions
- Charitable institutions
Stamp duty is levied on particular written documents and transactions, including:
- Motor vehicle registrations and transfers
- Insurance policies
- Hire purchase agreements
- Property transfers (e.g. transfer of businesses, real estate, and particular shares)
The stamp duty rate varies according to the type of transaction and its value. Depending on the nature of the transaction, certain concessions and exemptions may be available.
STATE TAX WEBSITES
Particular deductions and exemptions vary between states for all duties. For additional state-specific information, visit the required state website:
In addition to employees’ salaries and wages, employers are required to pay super contributions on behalf of all their eligible employees. This compulsory contribution is the superannuation guarantee. It requires you to pay super for your eligible employees, contribute to the correct super funds, and pay contributions by the cut-off date each quarter. The minimum super amount you are required to pay is 9.25% of each eligible employee’s earnings base (usually their ordinary time earnings).
You are generally required to pay superannuation contributions for your employees if they are:
- Over the age of 18 (no upper age limit from 1 July 2013)
- Paid $450 or more (before tax) in a calendar month
The ATO provides the following tools to help you understand and meet your obligations:
- Superannuation Guarantee Charge (SGC) statement and calculator – Calculate your SGC liability and prepare the SGC statement.
- Employee/contractor decision – Determine whether your new or existing workers are contractors or employees (for tax and super purposes)
- Superannuation guarantee eligibility decision – See whether you need to make super contributions for your employees
- Superannuation guarantee contributions calculator – Calculate how much super you should be contributing for your eligible workers.
Tax payers who do not meet their tax obligations may face penalty or interest charges. To avoid these charges, ensure you pay the full amount of tax you owe by the due date.
The main charges for failing to meet tax obligations are the:
- General interest charge (GIC) – Applies to a variety of situations, whenever outstanding amounts are due to the ATO.
- Failure to lodge on time penalty (FTL) – Administrative penalty which may be applied if you fail to lodge a return, statement, notice, or another document with the ATO by the required date.
Additional penalties include failing to:
- Keep or retain required records
- Retain or produce required declarations
- Provide access and reasonable facilities to an authorised tax officer
- Apply for or cancel GST registration when required
- Issue a required tax invoice or adjustment note
- Register as a PAYG withholder when required
- Lodge a required activity statement electronically
- Pay a required amount electronically
If a tax payer is audited and an amended assessment is raised, further penalties of up to 75% of the additional tax levied may be applied.