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Tax Topics

The following information on various tax topics may be useful to you.  

Personal circumstances can vary, so please ensure you contact us for specific advice.


Australian Business Number (ABN)

The Australian Business Number (ABN) is a single identifier used for all dealings with the Australian Taxation Office (ATO) and other government departments and agencies.

Businesses need an ABN and GST registration to claim GST credits for any GST paid on goods and/or services you have used in your business.  Where your business invoices for goods or services, you will need to quote your ABN to prevent other businesses from withholding tax from the payment at the highest marginal rate.


Do you need an ABN?


You need an ABN when interacting with the ATO on:

GST

Diesel and Alternative Fuels Grants Scheme

Luxury Car Tax

Wine Equalisation Tax

If you are applying for an endorsement as a deductible gift recipient

If you are applying for an endorsement as an income tax exempt charity


You can also use an ABN to interact with the ATO on the PAYG system and FBT.

 

Is the ABN Compulsory?

To be entitled to an ABN, you must be a:

  • Company registered under the Corporations Law and business entities carrying on an enterprise in Australia

  • Business with a GST turnover of $75,000 or more

  • Non-profit organisation with a turnover of $150,000+ (for GST purposes)

  • Certain entities (sole traders, companies, partnerships, trusts and superannuation funds)


For further information, see ATO Essentials



Business Activity Statement (BAS)

Activity statements are used to report and pay a number of tax obligations, such as;

  • Goods and Services Tax (GST)

  • Fringe Benefits Tax (FBT)

  • Pay as you go (PAYG) (instalments and withholding)

  • Luxury Car Tax (LCT)

  • Wine Equilisation Tax (WET)

  • Fuel Tax Credits


The ATO website provides instructions on how to complete sections of the activity statement.



Capital Gains Tax (CGT)


Captial Gains Tax (CGT) is the tax you pay on a capital gain.  It is not a separate tax, just part of your income tax.  The most common way you make a capital gain (or capital loss) is by selling assets such as real estate, shares or managed fund investments.


Overview

  • A capital gain - or capital loss - is the difference between what it cost you to get an asset and what you received when you disposed of it.

  • All assets acquired since tax on capital gains came into effect (20 September 1985) are subject to CGT unless specifically excluded.

  • The most common ways to make a capital gain or loss is by selling assets such as real estate or shares. CGT can also apply to intangible assets such as business goodwill.

  • Some main personal assets which are exempt from CGT include, your home, car and most personal use assets such as furniture. CGT does not apply to depreciating assets used solely for taxable purposes, such as business equipment or fittings in a rental property.

  • If you are an Australian resident, CGT applies to your assets anywhere in the world.


For further information, see Capital Gains Tax.


Deceased Estates


When a person dies, an executor is appointed by the deceased person's will to administer the deceased estate in accordance wih their will.  The Supreme Court can also appoint an administrator to deal with the deceased estate should there be no valid will or the person nominated to be executor is  unable to discharge their duties.


Being an executor


If you have been appointed an executor of a deceased estate, you are responsible for managing the deceased estate, including:

  • Administering the deceased estate in the best interest of the beneficiaries

  • Fulfilling tax responsibilities of the deceased estate

For further information, see Guide to Deceased Estates.


Fringe Benefits Tax (FBT)


Fringe Benefits Tax (FBT) is generally the tax payable by an employer on a taxable benefit provided to an employee (or their associate—usually family) and can relate to current, past or future employment.  The benefit could be in place or in addition to salary or wages. The tax is separate to Income Tax and the FBT year runs from the 1st April to 31st March.


Do you provide benefits to employees (or their associates) such as:

  • Do your employees take cars home at night?

  • Can your employees use cars owned or leased by the business for private purposes?

  • Do you provide low interest loans to employees?

  • Have you waived a debt from an employee?

  • Have you paid or reimbursed a non-business expense for an employee?

  • Do you provide housing or accommodation of any sort to your employees? This can be any kind of housing from units, cabins, caravans, boats—anything they live in

  • Do your employees receive a living away from home allowance?

  • Do you pay for food, drink or recreation for your employees or families?

  • Do you salary package for any of your employees (or yourself)?

  • Do your employees receive any kind of staff discount?

These are all examples of Fringe Benefits and the main categories are:


  • Cars (any company vehicle (less than 1 tonne) with private usage ie. Garaged at employee’s home, even if it is not authorized)

  • Expense Payments (paying for or reimbursing an employee’s expenses including things like health insurance, home telephone, school fees etc.—sometimes the taxable value can be reduced for business usage)

  • Entertainment (provision of meal entertainment or recreation).

  • Loans (low-interest loan provision—doesn’t apply if same conditions are available for regular customers)

  • Debt waiver (eg sell goods to employee then don’t worry about repayment—except genuine bad debt)

  • Housing (employer provides accommodation where employee usually lives includes houses, units, caravans, guesthouses, bunkhouses, hotels or motels);

  • Board (where employer provides accommodation and at least 2 meals/day—eg remote construction site);

  • Airline transport (free or discounted air travel on stand-by basis normally in travel industry)

  • Living-away-from-home-allowance (allowance paid to employees to compensate inconvenience and expenses of being away from home—additional expenses not normal tax deductible expenses)

  • Car parking (where a commercial car park is within 1km radius and charges an all-day rate above the declared fee threshold normally announced by the ATO each April.  The car parking benefit may be exempt if the employers total gross income was less than $10 million in the previous year and the parking is not provided in a commercial car park); 

  • Property (providing employees with no cost or low-cost goods eg clothing, electrical equipment etc. or real property—land/buildings or shares); 

  • Entertainment provided by a tax-exempt body; (food, drink or entertainment provided by or reimbursed by an employer who is exempt or partially exempt from income tax)

  • Residual benefits (where a benefit doesn’t fall into the above categories it becomes a residual benefit—for example a group health insurance policy provides for employees would be a residual benefit)


What’s NOT a fringe benefit?


  • Salaries and wage payments

  • Approved employee share acquisition schemes

  • Employer contributions to complying superannuation funds

  • Eligible termination payments (eg. Company car given or sold to employee on termination)

  • Laptop computers and mobile phones used primarily for work purposes.


You can reduce the amount of FBT you pay by:


  • Replacing fringe benefits with a cash salary

  • Providing benefits that your employees would be entitled to claim as an income tax deduction if they had paid for the benefits themselves

  • Providing benefits that are exempt from FBT

  • Using employee contributions

For further information, see the Guide for Employers.



Fuel Schemes


Fuel schemes provide credits and grants to reduce the costs of some fuels or to provide a benefit to encourage the recycling of waste oils. 


There are different types of fuel schemes.

  • Fuel Tax Credits - provides you with a credit for the fuel tax (excise or customs duty) included in the price of fuel you use for your business activities.  You must be registered for both GST and fuel tax credits before you can make a claim. You claim fuel tax credits on your business activity statement (BAS).

  • Cleaner Fuels Grant Scheme - is the making of or importing of fuels which have a lesser impact on the environment.

  • Product Stewardship for Oil Program - is aimed at supporting and encouraging environmentally sustainable management of used oil. This includes recycling used oil and the use of recycled oil.Energy

  • Grants Credits Scheme - is a fuel grant for businesses using alternative fuel or running a road transport business or operating vehicles with a gross vehicle mass (GVM) or 4.5 or more, but less than 20 tonnes. 

For further information, see Fuel Schemes Essentials.


Goods and Services Tax (GST)


Goods and Services Tax (GST) is a tax of 10% in Australia on most goods, services, and other consumables. If you are a registered business, you need to charge GST on most goods and services you sell or supply.


Likewise registered suppliers will include GST in the price of items you purchase from them for your business. You may be entitled to claim input tax credits from the ATO if you are registered for GST and the acquisitions are acquired for the purpose of carrying on your enterprise. Although the liability for paying GST rests with GST-registered entities, the end consumer bears the economic cost. 


You must register for GST if your business turnover exceeds $75,000 per annum or $150,000 and more for a not-for-profit organization.  If you provide taxi travel, you must register for GST regardless of your turnover.


If you registered for GST - or required to be - the goods and services you sell are generally taxable unless they are GST-free or input taxed.


GST-free sales include most basic foods, some education courses and some medical, health and care products and services.  


Input-taxed sales include lending money and renting residential premises.  You do not include GST in the price of input-taxed sales, and you cannot cliam GST credits for purchasers that you use to make input-taxed sales.  For an input-taxed sale such as residential premises for residential accommodation, you do not include GST in the price of the rent and cannot claim credits for the GST relating to the rental, such as agent's commission or repairs and maintenance.   In contrast, renting out  commercial premises, such as a factory is taxable.


The reporting periods for GST are called tax periods and can be quarterly or monthly. Quarterly tax periods are three months long, ending 30 September, 31 December, 31 March, and 30 June. Monthly tax periods end on the last day of each calendar month. Entities with an annual turnover of less than $20 million generally have quarterly tax periods, but can choose to have monthly tax periods. Entities with an annual turnover greater than $20 million are required to have monthly tax periods. 

The rules for attributing GST payable and input tax credits to tax periods differ according to whether GST is accounted for on a cash or accrual basis. You can account for GST on a cash basis if you meet one of these requirements:

  • Are a small business with an annual turnover of less than $2 million. This includes the turnover of your related entities.

  • Are not running a business, but are carrying on an enterprise with a GST turnover of $2 million or less.

  • Account for income tax on a cash basis.

  • Carry on an enterprise the commissioner has determined can account for GST on a cash basis regardless of your GST turnover.

  • Are an endorsed charitable institution regardless of your GST turnover.

  • Are a trustee of an endorsed charitable fund, gift-deductible entity, or government school, regardless of your GST turnover.

If you are not registered for GST, you cannot include GST on anything you sell or provide. You also cannot claim back any GST included in the price you pay for goods or services used in your business.


For further information, see GST for small businesses


Guide on Common GST Mistakes


Do you think your making mistakes when it comes to your GST? Have a look at our guide on common GST mistakes. Please ensure you have accurate bookkeeping systems in place to avoid these mistakes and possible future penalties by the Australian Taxation Office.

  • Bank Fees are treated as “input taxed” meaning the bank doesn't charge the customer GST. Please note GST is charged on credit card merchant fees & a credit for this can be claimed.

  • Business Insurance Policy – As there is a stamp duty component in the premium which is not subject to GST, a GST credit cannot be claimed on this portion of the payment.

  • Expenses Related to residential rental properties – where the entity is registered for GST. Residential premises are input tax and therefore GST credits cannot be claimed on the expenses paid.

  • Land tax, council rates, water rates, ASIC filing fees & motor vehicle registration where no GST has been charged should be coded FRE.

  • Sales of Cars & Equipment – including the trade of motor vehicles. The sale of a business asset is subject to GST just like an ordinary business transaction unless the going concern exemption is claimed.

  • Government Grants - & incentives which are received inclusive of GST.

  • GST Free Purchases – such as basic food items, exports & some health services.

  • Wages & Superannuation – payments are non-taxable supplies.

  • Entertainment Expenses

  • Not making adjustments to expenditure that is partly private & partly business use (phone, electricity & motor vehicle expenses). To calculate their GST liability, Small businesses are required to undertake this apportionment each time they prepare their BAS.

  • Interest Income & Expenses – should not have GST as the code.

  • Personal Income – that isn't really income (eg family loan, a gift or a tax refund) is non-taxable.

  • No Valid Invoice – at the time of lodging the BAS. Businesses in this situation should contact the ATO for permission to claim the GST credit.

  • Other GST Free – items include international travel, donations & some first aid supplies.


Please make sure all GST is correctly accounted for on each transaction & that the proper documentation is kept (eg valid tax invoices). Failure to do so may result in substantial penalties upon an audit from the ATO.


Imputation


The imputation system provides a way in which Australian corporate tax entities can pass on credit for income tax they have paid to their members. The system prevents income tax being levied twice - once when the income is earned by the entity, and once upon distribution of the income to its members. 


This imputation system works by franking a distribution. The franking account is a record of franking credits and franking debits that arise within an income year. All corporate tax entities are required to maintain a franking account. Typically a franking credit would arise in the franking account when the corporate tax entity pays its income tax or receives a franked dividend. A franking debit would arise when the corporate tax entity pays a franked dividend or receives a refund of income tax it has paid.


 For further information, see Imputation.



Income Tax


Income tax is levied on taxable income. Taxable income is calculated as [assessable income] less [any allowable deductions]. Deductions include wages, cost of stock, rent, bad debts, and previous year losses.


Individual


Resident Tax Rates 2013-14

The following rates for 2013-14 apply from 1 July 2013:



NOTE: Resident tax rates do not include the Medicare levy of 1.5%. 


For further information, see the Guide to Medicare Levy.




Non Resident Tax Rates 2013-14

The following rates for 2013-14 apply from 1 July 2013:


Note:  Non residents are not required to pay the Medicare levy.


For further information, see Individual Income Tax Rates.




Sole Trader


Sole traders are not required to complete a separate return for their business. They use their personal income tax return to report their business income and deductions.


Partnership


Partnerships complete a Partnership Tax Return to show the partnership's income earned and deductions claimed for expenses during the course of the business and how the profit or loss was shared among the partners. Each partner pays tax on their share of the partnership's income so they must include their individual share of the net partnership profit or loss in their personal tax return.  


Company


A company is a distinct legal entity with its own income tax liability therefore a company tax return must be completed for each company. A company's income tax is calculated as a percentage of the taxable income the company earned during the financial year. The company tax rate is 30%.


Pay As You Go (PAYG) Instalment


Pay As You Go (PAYG) instalments is a system for paying instalments during the income year towards your expected tax liability on your business and investment income.


Your actual tax liability is worked out at the end of the income year when your annual income tax return is assessed. Your PAYG instalments are credited against your assessment to determine whether you owe more tax or are owed a refund.


The ATO will write to entities and individuals who are required to pay PAYG instalments notifying them of an instalment rate.  This is calculated based on information from the last assessed income tax return.


PAYG instalments are generally paid quarterly, however some taxpayers pay two instalments a year and some have an annual instalment option. For further information see Introduction to Annual PAYG. The annual instalment is a single, lump sum payment of your PAYG liability for the year. If you are not eligible to pay an annual instalment, you can pay PAYG instalments quarterly. Each quarter the ATO will send you an activity statement. The due date for lodging the activity statement and paying any amounts due will be printed on your company's activity statement. This is also the case if you choose the two-instalment option, however this only applies to some primary and special professionals (eg sports professionals and authors).

 

Some entities and individuals pay an instalment amount calculated by the ATO, but most companies work out their own instalment amount based on their instalment rate multiplied by their business and investment income. The main advantage of working out your own instalment amount is that your instalments are based on your income as you earn it, instead of a projection based on your previous tax situation.


For further information, see PAYG Instalment Essentials.


Pay As You Go (PAYG) Withholding


Pay As You Go (PAYG) withholding is a system for withholding amounts from payments you make to employees and businesses so they can meet their end of year tax liabilities. 

You need to withhold payment amounts from:

  • Employees, company directors, and office holders

  • Labour hire arrangements

  • Voluntary agreements

  • Persons unable to work (e.g. due to sickness or accident)

  • Where an Australian Business Number (ABN) has not been quoted.

If you withhold amounts from payments, you need to:

  • Register for PAYG withholding

  • Withhold amounts from wages and other payments

  • Lodge activity statements and make payments to the ATO

  • Provide payment summaries to workers

  • Provide the ATO with a PAYG withholding payment summary annual report.

For further information, see PAYG Withholding.


Wine Equalisation Tax (WET)

Wine Equalisation Tax (WET) is a tax on wine and is levied at 29%.  The tax is paid on the value of the wine at the last wholesale sale, or an equivalent value when there is no wholesale sale.

 

WET affects wine manufacturers, wholesalers, and importers.  These wholesalers must report WET amounts payable to the ATO and WET credit amounts on Business Activity Statements (BAS).  Retailers do not have a WET liability unless they make their own wholesale wine.

 

Generally, WET is included in the price that retailers, such as bottle shops and restaurants, pay when purchasing wine. The retailer is not entitled to claim back the cost of the WET, as the WET is built into the price that the retailer pays and then passed on to the consumer.

  

For further information, see Wine Equalisation Tax Essentials

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