Most governments charge a percentage of the citizen’s earnings to ensure the maintenance and operation of the country’s infrastructure. Australian Taxation Office (ATO) is equipped to collect the required taxes from the specific entity as per the standardized rate. Read on to know more about paying company tax in Australia.
Understanding the business structure for paying taxes
The ATO needs any business to lodge a tax return each year – even if your company runs at a loss or doesn’t meet the taxation threshold. The tax return depends on the business structure of the payee and the structure of the businesses, mentioned as follows:
- Sole trader: You have to lodge an individual tax return and include all business incomes on the tax return by using a discrete business schedule. You don’t have to lodge a separate tax return for your business.
- Company: A company is considered a separate legal entity. You have to lodge a company tax return and pay taxes on the company’s earnings. Director(s) of the company have to report their incomes in addition to the company.
- Partnership: The partnerships will have their specific Tax File Number (TFN) and wouldn’t need to pay income tax on the profit it earns. Each partner would need to report their share on their tax return about the income they have achieved from the partnership. The partnership, in addition, will have to lodge a separate return under its TFN.
- Trust: A trust will have its TFN and must lodge its separate income tax return.
A not-for-profit (NFP) will be eligible for tax concessions. So, you should read the regulations carefully before starting the process of lodging your return to the ATO.
The Australian Company Tax Return System
The ATO requires every business owner to report the company’s financial position and the business activities for the financial year. The company will have to register the following facts to the ATO during the return of company tax:
- Annual income
- Expenses
- Balance sheet items
- Tax offsets
- Credits
The company’s tax return will provide information on its table income and its tax payable or returnable status position. Point to note, any personal income is not considered within pay from the company and hence will be taxed. The ATO only charges tax from the company’s profit – however, the concern has to file a return irrespective of profiting in its business or suffering from a loss.
The Company Tax Rate And Calculation
The Australian tax system is progressive – which means the more you earn, the more significant tax you pay. Usually, the ATO charges company tax at a flat rate of 27.5% for small businesses. A small business is defined as a trading concern that earns a revenue less than AUD 25 million and earns more than 80% of this revenue through business trading activities. A flat rate of 30% is levied on the concerns that fall outside this parameter.
ATO will calculate the tax amount on the business’s profit, which is the remainder of the business expenses subtracted from the business income. Any tax credit or offsets will change the amount of tax.
What You Can And Cannot Include On A Business Tax Return
The ATO will automatically send you a Business activity statement (BAS) at the time of lodging after you register for an Australian business number (ABN) and GST. The BAS permit the business holder to report and pay for certain taxes, including:
- Goods and services tax (GST)
- Wine equalization tax
- Pay as you go (PAYG) withholding
- Luxury car tax
- Pay as you go (PAYG) instalments
- Fringe benefits tax (FBT) instalments.
As per the Australian tax law, a business owner can claim the following factors as expenses:
- Insurance premiums: Applicable only for business public liability insurance.
- Tools and gear: Only when the gadgets are used to repair or produce something for the business and not for personal gain.
- Preservations, upkeep and additional costs: Applicable only when the company vehicle is repaired. You will not include any personal car repairs.
- Motor vehicle expenditures: The business owner can claim it for the fuel required for the company vehicle but not for his car.
- Office supplies and consumables: A business owner can claim expenses for printing supplies for their business and not for personal use.
- Utility charges for your business premises: One can only claim expenses for business landline, mobile, and Wi-Fi bills.
- Depreciation of business-owned assets: One can claim reduction for a gadget used for the business only.
- Council rates for company properties: Applicable only for real estate used for the company and specifically not owned individually.
- Interest to invest in acquiring company assets: Applicable solely for buying a commercial block of land. You cannot claim it for purchasing private real estate.
- Wages and salaries: A business owner can claim income and retirement contributions for their employees, not their unemployed relatives.
Likewise, you cannot claim the following factors as expenses for your company tax:
- GST portion of payment already declared in your BAS.
- Fines acquired in traffic.
- Fees due to entertainment.
- Home expenses – including childcare, clothes, meals, and medical expenses for the family.
How To Lodge Your Company Tax And BAS
You can lodge your company tax individually, or you can take the help of a professional. For the individuals preparing their report, the company tax return date is usually by 28th February. A registered tax agent will notify you of their tax return date. BAS dates are different, and they are paid monthly or quarterly. You can submit your tax return through any of the following channels:
- Through a registered tax agent
- Individual traders can return online with the myTax portal.
- Companies trust or partnership can submit the company tax with any standard business reporting-enabled software.
- You can also prepare paper and pen returns.
You can use a registered tax or BAS agent, online services in myGov, the business portal or an SBR-enabled software, or mail for your BAS submission.
Hire Certified Companies
The ATO collects the company tax in Australia through online or other financial modes. According to recent statistics, total taxation revenue collected in Australia at 2019-20 was AUD 552.0 billion – which was 27.8% of the real GDP. So, if you are using third-party companies to file your company tax, make sure about their registration with the Tax Practitioners Board (TBP).