YOU, your business and the tax man

Income tax

Just like individuals, every business must pay income tax to the Commonwealth Government. As with personal income tax, it is calculated on assessable income less any allowable deductions. However, how much you pay, and how you pay it, will depend on how you structure your business. Common business structures are:

• sole trader – an individual who is trading on their own. The income of the business is treated as the person’s individual income.
• partnership – an association of persons or entities that carry on business as partners or receive income jointly (except a limited partnership, which is treated as a company). A partnership doesn’t pay income tax: each partner includes their share of the profit or loss in their individual tax return.
• company – a distinct legal entity with its own income tax liability, separate to your personal income tax.

Business structures on the Australian Taxation Office (ATO) website.

Income tax for business on the ATO website.

ABN

The Australian Business Number (ABN) is an identifying number for dealings with the Australian Tax Office (ATO), and other government departments and agencies. If you do not have (or do not provide) an ABN for goods or services you supply, the payer is required to deduct 48.5% and pay it to the ATO as PAYG (Pay As You Go) withholding tax. An ABN is also compulsory if you are required to register for GST (see below).

The ABN on the ATO web site.

GST

Goods and Services Tax (GST) is a tax of 10% on most goods, services and other items sold or consumed in Australia. Generally, registered businesses include GST in the price of their goods and services, and claim credits for it, so the real cost is borne by the consumer. You must register for GST if your business has an annual turnover of $50,000 or more.

GST for small businesses on the ATO web site.

Activity Statements

Activity Statements provide the ATO with regular updates on your business income and outgoings. Generally, new businesses use an Activity Statement to report and pay their GST and PAYG withholding. You must complete and return your Activity Statements by the due dates, and pay any tax due.

Activity Statement essentials on the ATO web site.

Business records

Every business must keep proper and full records of the following:

• sales
• purchases and expenses
• year-end income tax
• payments to employees
• PAYG (Pay As You Go) withholding records relating to business payments.

Business Records on the ATO website.

Operating a business essentials on the ATO website.