What are the tax requirements for Australian companies?

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April 14, 2020
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What you need to know to understand your company’s tax requirements

A company structure is ideal for businesses with the main goal of scaling. It provides the flexibility to expand as needed, bring on new partners, reduce your personal liability, and take advantage of some worthwhile tax concessions.

In this article, we clearly and concisely lay out the tax obligations for Australian companies, so you understand everything that’s required of your business come tax time.

Liston Newton Advisory are here to help business owners make your company as tax effective as possible. Contact us today to discuss your company’s tax requirements.

Tax on your assessable income

Your company is required to pay tax on all your assessable income.

Your assessable income is the amount of profit you declare at the end of the financial year. You work out your profit by totalling your sales figure, and subtracting all the expenses you paid over the course of the financial year.

Be aware that this includes non-cash expenses, like depreciation.

For companies classified as a small business, the company tax rate for your assessable income is 27.5%, which is payable upon the lodgement of your company’s annual tax return.

Tax deductions

the phrase tax deductions written on paper beside financial figures

If you create an expense within your company that’s directly related to earning income for the company, you can claim this as a tax deduction.

This can be expenses in relation to employing and paying staff, travel, or operating expenses such as your insurance, software subscriptions, or office rental.

PAYG instalments

If your company employs staff, or you pay wages from the company, the you’re required to submit Pay As You Go (PAYG) instalments.

As the name suggests, PAYG instalments are designed to help your company pay tax as the year progresses, which goes towards covering your annual expected tax liability.

How it works

When your company lodges its annual income tax return, and it’s noted that you exceed the relevant threshold, the ATO will notify you that your company has entered the PAYG system.

This means you’ll now be issued with instalment notices, for payment on either a monthly or quarterly basis.

The amount you pay is based on your most recent income tax return, spread out in instalments over the year.

Lower company tax rate

For the 2020 financial year onwards, any base rate entity company with a turnover of less than $50 million is eligible for the lower company tax rate of 27.5%. Companies with a turnover of $50 or more remain on the 30% tax rate.

A company is considered a base rate entity if:

  • your turnover is less than $50 million; and
  • 80% or less of your assessable income is considered as base rate passive income, such as rent, interest, dividends, or net capital gain.

In the 2021 financial year, this tax rate will reduce to 26%, and then finally to a flat 25% in 2022 onwards. Companies with a turnover of $50 million or more still remain on the 30% tax rate.

Tax concessions for small businesses

couple looking surprised whilst looking at company documents

Instant asset write-off

Small businesses with a turnover of less than $50 million are able to instantly write-off the cost of business assets, up to a $30,000 threshold per asset.

[content_aside]Due to COVID-19, this threshold has been extended to companies with a turnover of $500 million, and a threshold of $150,000.[/content_aside]

Capital gains tax concessions

When selling an asset that’s held in or by your company, this triggers a capital gain event, which forms part of your company’s assessable income.

The capital gain is calculated as the difference between the amount you originally paid for the asset and the amount it’s sold for. Your company is taxed on the full amount of this capital gain.

Start-up deductions

Small companies that are just starting out are eligible to claim a range of deductions for the cost of starting their business. This covers things like government fees, legal advice, and accounting costs.

Fringe benefit tax concessions

For some companies, there are some concessions that apply to fringe benefits, which reduce the amount of fringe benefit tax your company is required to pay.

These can include concessions on:

  • Some benefits for living in remote areas.
  • Some benefits for employee travel when posted overseas.
  • Reimbursement of costs for employees using their own car during a relocation.

Get the right tax help

When operating your business under a company structure it’s important to get the right help.

Liston Newton Advisory are business structure experts. We’re available to:

  • Help your businesses make the transition into a company structure.
  • Ensure you know and understand your company obligations, allowing you to plan for them long before they’re due.
  • Help you minimise the tax your company is required to pay.

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