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    Attention

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Chapter 1: Things you need to know

    If you're about to start a small business, this presentation will help you understand what you need to know about your business and tax in Australia, and help you get it right.

    The ATO is here to assist you and there is lots of information and support tools on our website.

    The web-site explains Australia's taxation system and makes it easier for you to meet your obligations.

    We wish you every success in your new business.

    Setting up a business can be an exciting time.

    But it can also be a very busy time.

    There are all sorts of things for you to consider.

    One of them is taxation.

    We want to help you get it right. That way you can focus on making your business a success.

    Let's start at the beginning.

    If you make money from a business you'll probably have to pay tax to the Australian Government. The Australian Taxation Office or ATO collects tax for the government.

    The Australian Government uses this tax money to provides valuable services to the community including:

    • hospitals
    • schools and universities
    • police
    • roads, railways and airports, and
    • government benefits and other help.

    Understanding your tax obligations is important if you decide to start a business in Australia.

    Now, there are a number of different taxes your business may need to pay.

    It really depends on the type of business you operate, how it is structured and whether you employ people.

    In most cases you'll need to register for these taxes and meet a range of obligations.

    Thankfully, you don't have to do it all on your own. There is help out there.

    The ATO offers free support and guidance to help you and your business.

    To find out more visit the ATO website at ato.gov.au/business or phone 13 28 66.

    There's also other government business assistance you can access, like business.gov.auExternal Link that provides information on setting up a business.

    Many businesses in Australia use the services of a registered tax agent to help them meet their tax obligations.

    All tax agents must be registered with the Tax Practitioners Board. So check if your tax agent is on the agent register at tpb.gov.auExternal Link

    Chapter 2: Choosing the right structure

    What kind of business do you have?

    What's it made up of? How does it grow? The first thing you'll need to do when starting a business is to choose the business structure which best suits your needs.

    Getting it right can save you time and money.

    Now, there are four commonly used business structures in Australia; sole trader, partnership, trust or company.

    Ninh runs his own Cafe. He's a sole trader because he alone controls the business.

    His tax is calculated based on his personal income.

    Ali's landscaping business on the other hand is run as a company.

    This is a more complex structure.

    The company pays its own tax, separate from the owner's personal income.

    Then there's a partnership. That's where more than one person is in control.

    Or, if your business is controlled and managed for you by someone else, it's described as a trust.

    Choosing the right structure for you is an important decision because it will affect your tax obligations.

    You should consider each option carefully before you start a business.

    For more information visit the ATO website ato.gov.au and look up business structure, talk to your registered tax agent for advice, or phone the ATO on 13 28 66.

    Chapter 3: Different kinds of tax

    There are a number of different taxes, which businesses have to pay in Australia.

    Let's start with income tax.

    This is the tax you pay on any money your business earns.

    You'll need to complete a form telling the ATO how much money your business has made.

    The form is called a tax return and it has to be lodged with the ATO after the 30th of June each year.

    Then there's the goods and services tax, otherwise known as the GST.

    This is a tax of 10% on most goods and services sold or traded in Australia.

    You have to register for GST if your business 'turnover' exceeds a certain amount each financial year.

    If you're a taxi driver, you must register for GST regardless of your 'turnover' amount.

    So how does GST work?

    Well, if you are registered for GST your customers or clients pay the cost you charge plus 10% when they pay the bill. This 10% is the GST.

    You then send these 10% GST amounts to the ATO usually four times each year.

    You must complete and lodge a form called a business activity statement, also known as BAS when sending the GST money to the ATO.

    The ATO sends you the BAS form for you to complete.

    You can, of course, ask a registered tax or BAS agent to help you do this.

    All BAS agents must be registered with the Tax Practitioners Board.

    To check their registration, search the online register at tpb.gov.auExternal Link

    Just remember, that you're responsible for ensuring all the information is correct and that the form is lodged on time.

    To find out more about the types of taxes your business may need to pay talk to a registered tax agent, visit the ATO website at ato.gov.au or phone 13 28 66.

    Chapter 4: Registering your business

    One of the first things you'll have to do as the owner of a business is get a tax file number, known as a TFN.

    The TFN is a unique number that identifies your business.

    If you don't have a TFN, your business will have to pay tax at the highest rate.

    Your TFN really is an important form of identification, so keep it as secure as your passport or bank account details.

    You'll also need an Australian business number or ABN.

    This is the number you use when dealing with other businesses, government organisations and the ATO.

    If you don't quote your ABN on your invoices, these organisations or businesses will deduct tax at the highest rate from any payments they make to you.

    You may also need to register your business for the GST to fulfil your business GST obligations.

    You can find out more on registering for GST, getting a TFN or an ABN at the ATO website.

    Just visit ato.gov.au or you can phone 13 28 66.

    If you don't speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

    Chapter 5: Deduction and offsets

    If you spend money to run your business you may be able to claim this money as a tax deduction.

    This means you pay less tax.

    These deductions are subtracted from your income and the amount of tax you pay is calculated on this reduced amount.

    Of course, these deductions must relate to the business and not your own expenses.

    Deductions can include:

    • rent or lease-payments on your business premises
    • the cost of tools or other equipment for the business
    • employee costs
    • business motor vehicle costs
    • interest on money borrowed for the business
    • bank fees and charges
    • telephone and internet expenses
    • transport and freight, and
    • electricity or other power and fuel costs.

    You can find out what you can and can't claim for on the ATO website.

    Your business may also qualify for tax offsets which means you will pay less tax.

    Tax offsets such as the fuel tax offset are subtracted from the tax you owe after deductions are taken into account.

    Australian residents are taxed on their income whether it's earned in Australia and in any other country.

    You must report all income from overseas in your Australian income tax return, including income from foreign business or investment activities.

    If you've paid tax in another country, you may be entitled to the Australian foreign income tax offset, which means you don't pay tax twice.

    Scenario

    Ninh

    Skinny flat white, Kim. Anything else for you, today?

    Kim

    Actually, I could do with a little advice.

    Ninh

    Not many come to me for that.

    Kim

    Come on, this place is thriving, you must be doing something right!

    Ninh

    How can I help?

    Kim

    I'm thinking of opening my own business.

    Ninh

    Rival coffee shop?

    Kim

    Why would you think that? No!

    Ninh

    OK, what do you need to know?

    Kim

    Well, I just don't know where to start with all the taxation.

    Ninh

    I was the same. But talk to the ATO, they'll help you get started.

    Kim

    Really?

    Ninh

    Sure, first you have to work out how your business is structured. That was easy for me. I control the business so I'm a sole trader. Then I needed to get an ABN.

    Kim

    What did you need that for?

    Ninh

    An ABN is an Australian business number. You use it on your invoices, when you're dealing with other businesses or the government. It helps you with your tax.

    Kim

    Is it tricky to get one?

    Ninh

    It's simple. You can register for it on the ATO website.

    Kim

    So that's it, then?

    Ninh

    No, there's the GST too.

    Kim

    I knew it would be complicated.

    Ninh

    It isn't really. You can read all about it on the ATO website or ask a tax agent to help you to register and help you to do GST the first time.

    Kim

    Someone who can take you through it.

    Ninh

    Yeah, my tax agent helped me register for an ABN and the GST. Because I am registered for the GST with the ATO, they send me a business activity statement form to fill in. My tax agent helped me fill out my first BAS. I can do them myself now.

    Kim

    How did you know he was any good?

    Ninh

    If you use a registered tax agent they are regulated and it protects you from being ripped off. There's a big list of registered tax agents on the internet, I chose a local one.

    Kim

    Is he expensive?

    Ninh

    He's not cheap, but his fee is tax deductible.

    Kim

    What else can you claim for?

    Ninh

    Running a business I can claim tax deductions for the rent on the cafe, the cost of my business equipment, interest on the bank loan, the telephone & electricity even the business use of my car.

    Kim

    So where do I begin? The site you mentioned?

    Ninh

    Yes, the ATO website at www.ato.gov.au it has lots of information. It's where I went.

    Chapter 6: Employing other people

    Does your business employ people?

    If so, there are some important things you must do.

    You need to deduct the correct amount of tax from your staff's pay and send it to the ATO.

    You must do this for all employees, even if they are family members.

    This money is then sent to the ATO four times each financial year, usually when you pay your GST. This is called pay as you go or PAYG.

    You also need to report the PAYG payments on your business activity statement.

    Before paying your employees for the first time you must contact the ATO and register for PAYG withholding.

    When an employee starts work for you, ask them to complete a Tax file number declaration form.

    If your employees provide you with their TFN, you should follow the ATO's guide on how much tax to deduct from their pay.

    If they don't provide their TFN then you must deduct PAYG at the highest rate. The tax rates are available on the ATO website ato.gov.au

    Each year, you must provide all your employees with a payment summary.

    This shows how much they were paid and how much tax was taken from their pay.

    You must provide this summary to them within two weeks of the end of the financial year - The 30th of June each year.

    You must also provide the ATO with the same details.

    You may also have to register for and pay fringe benefits tax, known as FBT.

    This is a tax an employer pays on any non-cash payments or benefits provided to employees such as a mobile phone they can use for private purposes outside of work.

    It also applies to the private use of a work car or clothes they can wear outside work, paying their health costs or their children's school fees; and benefits such as cheap loans or tickets to sporting events, concerts or movies.

    These payments must be declared on an FBT return, lodged with the ATO after the end of the FBT year. The FBT year runs from 1 April to 31 March each year.

    Instead of hiring employees, you may use independent contractors.

    These are people with their own business and ABN who may do work for you, such as an electrician or a plumber.

    Usually independent contractors will pay their own PAYG, GST, and FBT. Or you can agree to deduct this money and pay it to the ATO for them.

    To find out more about who is an independent contractor and who is an employee, visit the ATO website and look up the Employer Contactor Decision Tool or phone them on 13 28 66.

    To find out more about employing people, visit the ATO website at ato.gov.au and look up the Employer essentials or phone 13 28 66.

    If you don't speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

    Scenario

    Kim

    Hi Ninh You've finally got some help around here.

    Ninh

    Yeah Mei's great. I was getting so busy.

    Kim

    You'll have an empire soon. So is Mei tax deductible?

    Ninh

    I can claim employee costs, but I had to let the ATO know I employed her first.

    Kim

    I bet tax really gets complicated when you start taking on staff.

    Ninh

    I thought it would be, but it's really simple.

    Kim

    So what happens?

    Ninh

    I asked Mei for her TFN, then I worked out how much tax I needed to take from her pay. I then send this amount to the ATO.

    Kim

    How do you send her tax to the ATO?

    Ninh

    My tax agent registered me as an employer, so now I need to fill in other details on my BAS, like how much tax I have taken from Mei's pay.

    Kim

    That's it?

    Ninh

    That's it. I give her a payment summary in July so she can do her tax return too.

    Kim

    What is on that?

    Ninh

    The payment summary tells her how much I've paid her and how much tax I have taken out of her pay.

    Kim

    Thanks Mei, See you Ninh.

    Chapter 7: Superannuation

    Superannuation is like a retirement program.

    Money from an employer is invested in a fund, known as a super fund. It's designed to provide income for employees when they retire.

    As an employer, you're required to contribute money to your employee's superannuation.

    You have to pay money at least four times each year into the superannuation account of employees who earn over a certain amount each calendar month.

    If you don't make your superannuation contributions on time, you will face penalties.

    The amount of super you pay is a percentage of the amount they earn for their ordinary hours of work.

    Your employees can choose their super fund, or if they don't, you must choose one for them.

    You also have to pay super for contractors if the contract is mainly for their labour, even if the contactor has their own ABN.

    If you're a sole trader or a partner in a partnership you don't have to pay super for yourself, but you can choose to make super contributions to save for your retirement.

    To find out more about super, visit the ATO website at ato.gov.au and look up Employers Superannuation or phone 13 10 20.

    If you don't speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

    Scenario

    Kim

    Make it a strong one please, Ninh, I was up late looking at CVs.

    Ninh

    You're expanding?

    Kim

    I will be, once I understand things like superannuation.

    Ninh

    I thought it would be complicated myself, but it's really simple.

    Kim

    Of course, you'd have set it up for Mei.

    Ninh

    Yes, once your employee starts work you have to set up a super fund for them. They can choose their fund or you can do it for them. As the employer, you have to contribute a certain percentage of what she earns into that account four times a year.

    Kim

    Why don't you just do it at the end of the year?

    Ninh

    I can't do that, If I don't make super contributions on time, I have to pay a Superannuation guarantee charge, and it costs me more.

    Kim

    It's a big undertaking.

    Ninh

    Look Mei is a good worker and I am looking after her future by paying super, it makes me feel good.

    Kim

    Thank you very much Mei. Helpful as ever, Ninh.

    Chapter 8: Record keeping

    Are your books up to date?

    Good record keeping makes it easier to meet your tax obligations and makes it easier for you to understand how your business is doing, and to make good business decisions.

    It also helps you complete your business activity statements and tax returns.

    You need to keep receipts and other evidence of all sales and purchases you have made for the business.

    You also need to have tax invoices and all documents relating to GST, wage and salary records.

    You must keep records of the purchase, sale and other costs of any business assets like land and buildings or office equipment.

    And remember to keep all records relating to income tax returns, business activity statements, FBT returns, and contributions to employee superannuation.

    By law you must keep these records for at least five years, either on paper or electronically.

    And keep your records secure.

    They must be in English or in a form that can easily be translated.

    The ATO has a record keeping evaluation tool to help you work out the recording needs of your business.

    You can download it free of charge from the website at ato.gov.au/business or phone the ATO on 13 28 66.

    The ATO also has free seminars and workshops on topics like GST, PAYG, activity statements and record keeping for small businesses operators and anyone thinking about starting a new business.

    Visit the ATO website at ato.gov.au and look up 'Introductory sessions for small businesses' or phone the ATO on 13 28 66.

    Scenario

    Kim

    Hi Ninh, busy?

    Ninh

    Just updating my accounting software.

    Kim

    What sort of stuff do you put into it?

    Ninh

    I am recording my income and expenses, that way I can track what I'm making and what I'm spending.

    Kim

    You do it all online?

    Ninh

    Yes, thanks to this.

    Kim

    Let me guess... a tax deduction?

    Ninh

    Yes, and it also helps me access the ATO business portal.

    Kim

    What can you do on that site?

    Ninh

    I can Lodge activity statements, annual reports and superannuation statements.

    Kim

    Oh, is there a schedule for tax returns and activity statements?

    Ninh

    Right there. There's also news about free seminars and workshops.

    Kim

    Workshops?

    Ninh

    Yeah, with advice on things likes GST and activity statements.

    Kim

    Sounds interesting, I might go to one

    Ninh

    If you pick up any good business ideas, you'll let me know?

    Kim

    Depends

    Ninh

    On?

    Kim

    Whether this coffee's free or not?

    Chapter 9: Doing things online

    The ATO website offers a range of products and services that are secure and convenient.

    They save you time and are a great way to do business with the ATO.

    There's lots of helpful tax information for people starting a new business.

    You can apply for an Australian business number (ABN) online.

    You can also register to use our online services to lodge activity statements, annual reports, superannuation statements and Tax File Number Declaration reports.

    You can also find important dates, including deadlines for income tax returns and activity statements.

    There's also information about Standard Business Reporting that offers a quicker and easier way for businesses to complete their government reporting.

    Running a small business can be complicated and it's sometimes difficult to keep up with tax obligations.

    However some people use cash transactions to deliberately hide income, to avoid paying tax.

    This is called operating in the 'cash economy'.

    These people are not only cheating you, but cheating all Australians who benefit from the services our taxes provide.

    So when the ATO finds businesses operating this way it applies the full force of the law.

    You should feel comfortable and confident dealing with Australia's tax and super systems. Remember: the ATO is there to help people in genuine difficulty, and protect honest businesses from those who seek to abuse the system.

    If you make a mistake, such as failing to report certain income, or are having trouble meeting your tax and super obligations, you need to contact the ATO as soon as possible. We'll work with you to find a solution.

    Chapter 10: Meeting your obligations

    The ATO has all sorts of ways to identify those who are deliberately avoiding their tax obligations.

    It compares information businesses give them with information from banks, agencies and other sources.

    It identifies people who seem to be spending much more than they earn.

    It also responds to information it receives from the community.

    In addition to all these things, the ATO has benchmarks for small businesses.

    These provide guidance on the amounts the ATO expects different types of businesses to report.

    The ATO is making it harder for dishonest operators to get away with not reporting cash income.

    By doing so, it's making it fairer for everyone in business.

    To find out more on the cash economy in other languages, visit the ATO website at ato.gov.au and look up cash economy or phone 13 28 66.

    If you don't speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

      Last modified: 14 Jul 2014QC 25113