Tax Responsibilities of Small Business Owners
Have you started a small business and are wondering what you need to do to keep your tax affairs in order?
In this article, we provide an overview of the tax responsibilities of small businesses including record keeping, reporting obligations and paying tax.
It is important to note, however, that the tax requirements of a business will depend on the legal structure, type of business and number of employees of the business.
Registering your business for tax purposes
You will need to register your business for tax purposes.
The most common tax registrations which businesses need to complete are those for a tax file number (TFN), an Australian business number (ABN), registration for GST purposes and pay as you go (PAYG) withholding tax.
Registration for most tax obligations can be completed online or through a tax agent.
Keeping good records
It is a legal requirement that certain records and documents which explain the transactions of your business be kept. For example, account books, receipts for supplies, invoice and statements for acquisitions and wage records must be kept for 5 years. If appropriate records are not kept, penalties can be imposed.
Records can be kept electronically or on paper.
A business must report to the Australian Taxation Office (ATO) its income and expenses in relation to a range of taxes including GST, PAYG withholding and income tax.
The form which a small business uses to report tax information is called a business activity statement (BAS) and it is lodged at the end of each reporting period (typically, monthly or quarterly).
If a small business employs staff, it must deduct from any salaries which are paid to that staff, a specified amount to account for the tax payable by the employee on the salary payments. That amount is then sent to the ATO using the PAYG withholding system.
If you have a PAYG withholding obligation, you must:
- register for PAYG withholding;
- work out which payments you need to withhold from;
- work out how much to withhold;
- report and pay to the ATO the withheld amounts;
- provide an annual payment salary to employees; and
- send an annual statement to the ATO.
Your superannuation obligations
An employee must pay superannuation for eligible employees, which includes most full-time, part-time and casual workers in Australia.
The minimum amount of superannuation which a business owner must contribute for its employees is 9% of an employee’s earning base. Superannuation is paid into a complying super fund or retirement savings account.
There are a number of options available for paying tax amounts owed to the ATO. Payments can be made electronically (for example, through Bpay, direct credit or debit or credit card) in person at an Australian Post outlet, or by mail.
Meeting your tax obligations as a small business owner is an important concern. If you are in doubt about your tax responsibilities, you should contact your lawyer or accountant for advice.
If you or someone you know wants more information or needs help or advice, please contact us on 02 8325 1520 or email firstname.lastname@example.org.