How are companies taxed in Australia?

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View of the top of an Australian annual company tax return form
Taxation
By
Stewart Lane
Stewart Lane
Head of Tax
April 10, 2020
3
minute read

A guide to the key taxes your company is required to pay, and what each one means

Your tax requirements as a company are much more involved than other business structures. Australian companies can expect to pay tax on your profits, any capital gains made, your goods and services rendered, employee benefits, and even your payroll.

Liston Newton Advisory makes understanding your company tax obligations easy. Contact us today to discuss the specific tax requirements relevant to your company.

Company tax on profit

Companies that are residents of Australia are subject to Australian income tax on their worldwide income.

There are two tax rates for companies in Australia. The turnover threshold for being considered a small business is $10 million.

  • For small businesses with an annual turnover less than $10 million, the current tax rate is 27.5%.
  • Companies with an annual turnover exceeding $10 million receive the full business tax rate of 30%.

Your company’s profit is taxed at these rates.

To determine your profit, your company prepares a set of financials every year. The figure is calculated by your sales, minus any expenses and wages you’ve paid yourself.

The profit is then either distributed to the company shareholders or retained in the business to fund future growth.

Example

Your business has $500k in sales. You spend $200k on expenses, and $100k on wages. This leaves you with $200k profit.

This profit is taxed at 27.5%, meaning you pay $55k in tax.

This leaves $145k to be distributed to shareholders as dividends, or kept within the business.

Capital Gains Tax

capital gains tax written on a piece of paper on top of financial documents

Capital Gains Tax (CGT) is the tax you pay when selling an asset that’s held in or by your company. This may be things like a vehicle, or property that’s used by the business.

While it sounds like a different type of tax, it still forms part of your company’s assessable income for that year, and is subject to the 27.5% tax rate.

A capital gain is calculated on the difference between the amount you paid for the asset, and the value you sell it for.

Example

You purchase your company office for $800k. You’re able to sell it for $1.8 million.

Therefore you’re required to pay tax on the $1 million capital gain you make from this sale.

GST

Goods and Services Tax (GST) is a flat 10% tax that’s added to the supply of certain goods and services.

Your company must register for GST if:

  • Your business turnover within a 12-month period is $75,000 or more.
  • You’re a not-for-profit organisation with a business turnover within a 12-month period of $150,000 or more.
  • You provide a taxi or ride-sourcing service.

Typically the GST amount gets added to your prices and passed on to your consumers. Some goods and services are considered GST-free. These are things like basic foods, healthcare products and services, and medical products and services.

If you’re unsure, contact your tax accountant to determine whether or not your goods and service incur GST.

Fringe Benefits Tax

Fringe Benefits Tax (FBT) is a tax that’s payable by an employer for benefits that are provided to their employees, outside of their salary.

So for example, your company might:

  • Provide an employee access to a company car
  • Pay your employees’ gym memberships
  • Provide meals and other types of entertainment (where the employee isn’t travelling overnight)

FBT is separate to your company income tax. It’s calculated on the value of the fringe benefit itself. Your company is required to self-assess your FBT liability, and lodge a separate FBT return.

Generally, your company can claim GST credits on fringe benefits you provide, and claim tax deductions on the cost of providing the benefits.

Payroll tax

calculator on top of statement of payroll details

Payroll tax is a self-assessed tax that’s determined on the value of the wages your company pays to its employees, when this amount exceeds a particular threshold. This threshold varies from state to state.

Your payroll tax return is lodged and paid to your state’s respective revenue office, at either monthly, quarterly, or annual intervals.

State

Threshold

Rate

VIC

  • $54,166 (monthly)
  • $650,000 (annually)

4.85% OR 2.425% for regional employers

NSW

  • $950,000 (annually)

5.45%

ACT

  • $166,666.66 (monthly)
  • $2 million (annually)

6.85%

QLD

  • $25,000 (weekly)
  • $108,333 (monthly)
  • $1.3 million (annually)

4.75%

SA

  • $125,000 (monthly)
  • $1.5 million (annually)

Variable from 0% to 4.95%

WA

  • $79,166 (monthly)
  • $950,000 (annually)

5.5%

NT

  • $125,000 (monthly)
  • $1.5 million (annually)

5.5%

TAS

  • $1.25 million (annually)

4%

The final word

As you can see, there are a number of key tax requirements your company is obligated to comply with.

However, this is not a comprehensive list. There may be other state and territory taxes relevant to specific business types and activities that apply to your company.

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