Starting a new business can be an exciting but also daunting time for individuals apprehensive of their newfound tax obligations and responsibilities.
For instance, an important responsibility of individuals working for themselves is to calculate, withhold and remit tax on their assessable income to the Australian Taxation Office (ATO), whereas employees can rely on their employers to do so.
Businesses report and pay their estimated tax obligations during a year through the ATO’s pay as you go instalment system, which are referred to as PAYG tax instalments. Depending on a business’s income threshold, the instalments will be reported annually, quarterly or monthly. Taxpayers can either voluntarily enter the ATO’s PAYG instalment system, or alternatively will be automatically entered into the system where a previously lodged tax return’s liability exceeds certain thresholds.
Another important tax consideration for a new business is goods and services tax, which is commonly abbreviated to GST. Businesses who earn or expect to earn gross income of $75,000 or more in a year must register for GST. Again, GST will be reported to the ATO annually, quarterly or monthly depending on income thresholds. GST is calculated as 1/11th of your applicable business income and expenses.
The task of calculating the correct tax and GST to report to the ATO each period can often prove difficult and time consuming, especially where a business’s profit fluctuates. The easiest way to stay on top of these tax obligations is to maintain an appropriate record-keeping system such as accounting files like Xero or MYOB. This is due to the file’s ability to produce reports such as GST reconciliations and profit and losses, which will evidently present the relevant information for ATO reporting.
In addition to the reporting benefits of an accounting file, the software will often offer other business-related services, such as their own invoicing and payroll systems. The benefit of amalgamating all aspects of your business into one system should not be understated, as it will likely save yourself time and perhaps accounting fees.
There are of course many other factors to consider before starting your business, however with regard to taxation, the aforementioned points are the most imperative. To read on other non-tax related considerations please see the following checklist from the Australian Government https://business.gov.au/planning/new-businesses/starting-a-business-checklist
Other related blogs:
Is it a business or a hobby?
How do I register a business name?
Author: Amy Murphy
Email: amy@faj.com.au
