Video transcript - Overview - Tax basics for small business
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I started designing websites for myself as a hobby, then some friends started asking me to design theirs. Now I’m getting orders.
How do I know when I’m running a business?
If your activity has commercial characteristics, you intend to make a profit and your activity is planned, organised and carried on in a business-like manner - then you’re most likely in business. You must declare any business income you earn, and you can generally claim deductions for expenses you incur in running your business.
I do lots of different work, some small jobs, some bigger - how do I know which business structure is best for me?
There are a few options for your business structure. You can choose to operate as a sole trader, a partnership, or a company or trust. They have different legal obligations and are taxed differently. The ATO can advise you how tax applies to your chosen structure.
Do I need a tax file number (TFN) and an Australian business number (ABN)?
If you operate as a sole trader, you can use your individual tax file number, or TFN, for your business. If you operate as a partnership, company or trust, you’ll need a separate TFN.
As a business you may also need an ABN. Having an ABN:
- helps you claim goods and services tax credits or GST (goods and services tax) credits
- lets you register to claim fuel tax credits you qualify for
- allows businesses to easily confirm your details for ordering and invoicing, and
- prevents businesses you deal with from withholding amounts from payments to you under pay as you go (PAYG) withholding.
For individuals or sole traders, you can use the ABN entitlement tool to determine if you are entitled to apply for an ABN.
What sort of records do I need to keep and for how long?
Keeping good records makes it easier to do your tax. In fact, there are many other benefits with keeping good records. You can monitor how your business is doing, manage your cash flow and show your financial position to banks and money lenders. Keeping good records helps you to have a good understanding of the financials of your business, which is crucial to the success of your business. For tax, you must keep most records for five years.
The ATO has developed an electronic tool to help you work out your record keeping needs.
Based on the information you provide, the record keeping evaluation tool will give you a list of the records you must keep and a report that shows how well you’re keeping your records. It’s a clever tool - where it can, the report will also include suggestions for improving your record keeping.
When do I need to register for GST?
You must register for GST, if your business turnover exceeds the GST registration threshold.
You must also register if you are a taxi driver, or provide a limousine or hire-car service.
If you are registered for GST, you must pay one-eleventh of your taxable sales to the ATO. You can claim credits for the GST you pay in the price of your business purchases.
How do the fuel tax credits work and how do I claim them?
Fuel tax credits are amounts you can claim for the fuel tax included in the price of fuel you acquire and use for your business activities. If you’re eligible to claim, you will need to find out the rate you can claim. The rates vary depending on what fuel you use and your business activities. Your business must be registered for both fuel tax credits and GST before you can claim fuel tax credits.
The café is doing really well, I didn’t expect it to grow so quickly - now that I’ve got staff, do I need to withhold their tax?
If you pay employees and directors you need to be registered for pay as you go, or PAYG withholding and send the amounts you withhold to the ATO.
In some situations, you may need to withhold amounts from payments to other businesses.
What about super for my employees?
As an employer, you must pay super for your eligible employees and certain contractors. This is called the superannuation guarantee.
Your employees may also be eligible to choose the super fund you pay their super into.
Do we need to lodge business activity statements?
Most businesses must lodge a business activity statement, or BAS, and pay their tax every three months. If you operate a small business, you may be eligible to lodge once a year.
You can lodge your BAS online through the Business Portal or using Standard Business Reporting enabled software. To do this, you’ll need an AUSkey. More information is available at ato.gov.au/onlineservices
You should always lodge your activity statements on time to avoid any penalties even if you can’t pay.
The ATO offers a range of information and services to make it easier for you to comply with your business tax obligations.
Check out their website or for more information call the numbers on screen.
This video is an overview of tax and super obligations that may arise when starting and running a small business.