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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.
How to calculate corporate income tax
The formula for computing your corporate income tax is actually quite simple, and can be described in one simple step:
- Business Income - Business Deductibles = Taxable Income
A company’s business income will be composed of all money made from sales and services rendered in Australia and overseas. It will also include income earned from stock trading, profitable one-off transactions and capital gains.
Deductions are only legitimate if they are expenses made for the business. These might include salaries and wages for staff, maintenance and repair costs for your equipment or property, or corporate travel expenses.
To be clear, your business will be taxed on your declared profits, not your gross revenue.
Your corporate tax is a percentage of your taxable income and is known as your tax rate. The corporate tax rate in Australia is 25% for base rate entities and 30% for non base rate entities.
Types of company taxes in Australia
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 Base Rate Entity company tax rate is 25%
- The Non Base Rate Entity company tax rate is 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 a $200k profit.
This profit is taxed at 25%, meaning you pay $50k in tax.
This leaves $150k to be distributed to shareholders as dividends or kept within the business.
Capital Gains Tax
Capital Gains Tax (CGT) is the tax you pay when selling an asset that’s held in or by your company.
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 25% 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 corporate turnover within a 12-month period is $75,000 or more.
- You’re a not-for-profit organisation with a corporate turnover of $150,000 or more within a 12-month period.
- 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 from your corporate 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
Payroll tax is a self-assessed tax that’s determined by 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 revenue office monthly, quarterly, or annually.
[table][thead][tr][th]State/Territory[/th][th]Weekly Threshold[/th][th]Monthly Threshold[/th][th]Annual Threshold[/th][th]Tax Rate[/th][/tr][/thead][tbody][tr][td]VIC[/td][td]-[/td][td]$58,333[/td][td]$700,000[/td]
[td]4.85% or 1.2125% for regional employees[/td]
[/tr][tr][td]NSW[/td][td]-[/td][td]-[/td][td]$1,200,000[/td][td]5.45%[/td][/tr][tr][td]ACT[/td][td]-[/td][td]$166,666[/td][td]$2,000,000[/td][td]6.85%[/td][/tr][tr][td]QLD[/td][td]$25,000[/td][td]$108,333[/td][td]$1,300,000[/td][td]4.75%-4.95%[/td][/tr][tr][td]SA[/td][td]-[/td][td]$125,000[/td][td]$1,500,000[/td][td]Variable from 0% to 4.95%[/td][/tr][tr][td]WA[/td][td]-[/td][td]$83,333[/td][td]$1,000,000[/td][td]5.5%-6.5%[/td][/tr][tr][td]NT[/td][td]$28,846[/td][td]$125,000[/td][td]$1,500,000[/td][td]5.5%[/td][/tr][tr][td]TAS[/td][td]-[/td][td]-[/td][td]$1,250,000[/td][td]4.00%-6.10%[/td][/tr][/tbody][/table]
When to pay your corporation tax
Businesses structured as partnerships and trusts, or those operating as sole traders, must lodge their tax return by October 31st.
The best way to ensure that your company tax return is lodged on time is to employ the services of certified Australian business accountants.
How to lodge a business tax return
Your business tax return is your declaration to the ATO of your business’s assessable income, so that they can gauge your tax liability.
The best way to submit your tax return is with the help of a certified business accountant. Small businesses may also use accounting software like Xero to prepare their tax returns. Sole traders can complete their tax returns themselves through the ATO’s myTax portal.
Do foreign companies pay tax in Australia?
While the Australian government taxes Australian-resident companies on their worldwide income, non-resident companies are taxed differently.
Foreign companies are only taxed on the income they generate in Australia.
However, non-resident foreign companies usually, though not always, operate under a company structure. If a non-resident company conducts its business in Australia, has an Australia-based management team or is controlled by Australian residents, then it may become incorporated in Australia.
If a foreign business is incorporated in Australia, it will be taxed on its worldwide income, just as any other Australian-resident business would be.
Incorporated or not, all foreign businesses are taxed at the 30% corporate tax rate.
For full details, visit the ATO website. Our foreign-owned business accountants are always available to help you understand and comply with Australia’s tax laws.
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.
