Running your business

Taxation obligations is important when starting up a new business.

If you were employed before you started your business, you’ll find that your tax affairs now become a lot more complicated.

Various federal, state and local government taxes and rates can apply, depending on the size and location of your business.

While you pay tax on your income, you can claim legitimate business expenses. These are costs necessarily incurred in running your business and include such items as advertising, bank charges, computer supplies, insurance premiums, postage, printing and stationery, staff training expenses, sub-contracting costs, technical journals, telephone and other communication costs, and travel.

You’ll need to keep records relating to all transactions for at least five years and, in the case of records relating to the fringe benefits tax, for seven years.

Your professional advisers will help you set up an accounting system that is appropriate for the nature and scale of your business.

Some of the taxes that apply when you are in business include the following:

Pay As You Go (PAYG) withholding tax

PAYG is a system for businesses to pay instalments of their expected tax liability on their business and investment income during the financial year. PAYG instalments are usually paid quarterly.

Goods and Services Tax (GST)

You must register for GST if you are carrying on a business or enterprise and any of the following apply: your current or projected annual GST turnover is $75,000 or more ($150,000 or more for non-profit organisations), you provide taxi travel, you want to claim fuel tax credits, or you want to claim wine producer rebates.  If your annual GST turnover is below $75,000, you can choose not to register for GST.

Where a business is registered, GST at the rate of 10 per cent must be added to the invoiced price of taxable supplies. The supplier collects GST from the customer. Only businesses registered for GST purposes can collect GST.

As a supplier, you may also be paying GST on purchases made to run your business. This can be claimed by way of what are known as input credits. You can account for GST on either a cash basis (when payment is received from customers) or an accruals basis (when customers are invoiced).

At the end of the period (monthly and quarterly options are available), your business will need to account for GST collected on taxable supplies and input credits which are being claimed. The difference between the two will determine the net GST to be paid or refunded. Reporting on this takes the form of a Business Activity Statement (BAS).

Every business needs to have an Australian Business Number (ABN). Businesses registered for GST are automatically given an ABN.

If you do not have an ABN, other businesses may be unwilling to deal with you because they may not be able to claim their GST input tax credits. Where an ABN cannot be quoted, other businesses will be required to withhold tax from payments made to you.

Lodging Activity Statements

Businesses use an activity statement to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Activity statements are also used by individuals who need to pay quarterly PAYG instalments.

Regardless of the size or complexity of your business, there are some fundamental things you must do. You need to manage your invoices, payments and other paperwork and you must comply with your tax obligations. Managing your cash flow will help all these aspects of your business.

Capital Gains Tax (CGT)

CGT is a tax imposed on any gains made on the disposal of an asset. There are special provisions for relief from CGT where the disposal of an asset occurs as the result of restructuring a business into a company. There are also special concessional provisions that relate to the disposal of a small business.

Before you purchase or sell an asset or a business, it is wise to seek professional advice to see if you qualify for any relief provisions.  Professional advice can also help you plan ahead and manage your taxation responsibilities.

Your accountant or tax adviser will help you determine any other taxes that might affect you, including:

  • Income tax
  • Land tax
  • Payroll tax
  • Stamp duty
  • Fringe benefits tax
  • Superannuation guarantee levy

Paperwork – managing invoices, payments & paperwork

Running a business inevitably involves some paperwork and you must make sure you comply with your tax obligations. By understanding the very basics, you can make this relatively pain free.

When you operate a business, you have transactions where money flows into your business (receipts) and out of your business (payments). These transactions are supported by documents recording the details of the transactions, such as tax invoices, wages records, cheque butts and credit card statements. These documents contain the information you need to record, such as the date of each transaction, total payment or amount received or the amount of GST.

Cash Flow

Cash flow is what keeps your business going. A good way to help make sure you have enough cash available at the right time to meet your tax, super and other obligations is to do a cash flow budget. We also have some tips to help you manage your cash flow better.

Kasker Associates website is to provide information of general interest to their clients. The content of this website does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.