Tax and Running a Business in Australia
There are four ways you can structure your Australian business affairs. You can run your business as a sole trader, partnership, company or trust. As there are many legal rules and regulations associated with running a business, you need to look at the various benefits that each structure can offer you, as well as their potential limitations. If the business structure you select is complex and costly to administer, you could face major issues.
When running a business, there are many taxation issues you need to comply with, such as keeping proper records of all your assessable income and allowable deductions.
You must collect 10 per cent GST on taxable sales from your customers or clients, and remit the amount to the Tax Office, if you're required to register for GST. You must register for GST if your GST turnover (or sales) is likely to be $75,000 or more a year (or $150,000 a year if you operate a non-profit organisation).
If you have employees under the PAYG withholding tax system, you're required to register and withhold the prescribed amount of tax from their pay and forward the amount withheld to the Tax Office at regular intervals. You must also make employer superannuation guarantee contributions on their behalf to a complying superannuation fund or retirement savings account. And, if you provide a fringe benefit to an employee (for instance, you provide a car that you own or lease for the private use of an employee), you may be liable to pay FBT on the taxable value of the benefit you provide.
Under Australian tax law, for an expense to be deductible there must to be a relevant and/or necessary connection between your business activities and the expenditure you incur. But you can't claim a tax deduction if the expenditure is capital, private or domestic in nature. For example, you can claim certain business expenses, such as advertising, insurance, depreciation, interest on borrowings, and superannuation contributions.
If you run a small business and your annual turnover is less than $2 million, you can qualify for a number of tax concessions for small business. For instance, you can claim an immediate tax deduction for business assets that cost $1,000 or less, and you don't need to do a stocktake or make any adjustments if your stock valuations are unlikely to vary by more than $5,000 each year. And, under the CGT concessions for small business, you may qualify for CGT relief on disposal of certain active business assets that your business owns.