Tax basics – businesses
If you are running a business or you intend to start a new business, there are tax, reporting and record keeping requirements you will need to consider.
Earning money from a business usually means you will need to pay tax. You may also be able to claim some tax deductions or concessions.
If you employ workers into your business you may have additional tax and super obligations.
Exemptions for Norfolk Island businesses
GST and other indirect taxes
The Australian goods and services tax (GST) will not be extended to Norfolk Island.
Luxury car tax, wine equalisation tax, and fuel tax credits also don't apply to Norfolk Island.
Capital gains tax (CGT)
A capital gain or capital loss on an asset is the difference between what it cost you and what you receive when you dispose of it.
On 23 October 2015 changes to CGT for Norfolk Island residents were announced, however legislation about this has not been finalised. More information about this will be available soon.
Business or hobby
If you are currently undertaking an activity or intend to start up a business, it is important to know whether your activity is a business or hobby. Unlike a hobby, a business has reporting requirements such as declaring income earned and claiming expenses which a hobby doesn't have.
Your business structure
Different business structures have different tax responsibilities and you may already be operating under a particular business structure. You will need to consider which structure is right for you. The four main business structures are:
- sole trader
Registering your business
Apart from needing your own tax file number (TFN), and a separate one for your business unless you're a sole trader, you may also need to register for:
- an Australian business number (ABN) - the unique identifier for your business
- AUSkey - the secure login for accessing some Australian government online services
- fringe benefits tax (FBT) - the tax employers pay on benefits provided to employees (or their associates) in lieu of all or part of their salary or wages
- pay as you go (PAYG) withholding - for withholding tax from your workers' pay and sending these amounts to us.
Norfolk Island businesses are not required to register for the Australian goods and services tax (GST). Luxury car tax, wine equalisation tax, and fuel tax credits also don't apply to Norfolk Island.
Pay as you go (PAYG) instalments
You may need to make regular payments towards your expected annual income tax liability if your business and/or investment income is over a certain amount. This can be done by making PAYG instalments for yourself. This is different to PAYG withholding, which is for withholding tax from your workers.
You don't need to register for PAYG instalments - we will notify you if you need to start paying instalments after you lodge your first tax return. However, you may want to voluntarily request to enter the PAYG instalments system early and pay instalments before you lodge your first Australian tax return to avoid ending up with a large tax bill.
It is important to understand the tax and super obligations when you employ workers. Responsibilities when employing a person include:
- providing a tax file number (TFN) declaration
- PAYG withholding
- annual payments summaries
Record keeping and online reporting
Setting up a good record keeping system will not only allow you to keep track of your income and expenses but make it easier for you to meet your reporting requirements and substantiate claims in your tax return. You must keep your business records for five years.
Income and deductions for business
When you operate a business, you will need to pay income tax on money your business earns (after claiming deductions for business expenses). You must lodge a tax return to report your taxable income. You will still need to lodge a tax return if your business makes a loss. The type of tax return form you use depends on your business structure.
Small business concessions
If your business is a 'small business entity' with an annual turnover of less than $2 million you may be able to access a range of tax concessions.
If you earn income from running a business, there are tax, reporting and record keeping requirements. Learn about different business structures, what taxes will affect Norfolk Island businesses and how to report this to us. There are certain deductions and tax concessions that you may be able to claim as well.