Types of Business Taxes in Australia: A Quick Guide for Entrepreneurs

1. Income Tax

Income tax is a cornerstone of Australia’s tax system, individuals and businesses are subject to income tax on their assessable income. Companies are taxed at a flat rate of 30% on their taxable income, although small businesses with a turnover below a certain threshold may qualify for a lower rate of 25%. Additionally, partnerships, trusts, and sole traders are taxed on their share of net income at individual tax rates.

2. Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a value-added tax charged on most goods and services consumed in Australia. Businesses with annual turnovers exceeding a certain threshold (currently $75,000) are required to register for GST and charge GST on their taxable sales. They must then remit the collected GST to the Australian Taxation Office (ATO) while also claiming credits for any GST paid on business purchases.

Depending on whether your business uses a cash accounting method or an accrual method, GST can impact your cash flow. But there are also certain instances where you can claim back GST credits.

3. Payroll Tax

Payroll tax is a state-based tax imposed on the wages paid by employers. It is calculated based on the total wages paid by the employer and is administered by each state or territory government. The threshold for payroll tax varies between states, and businesses that exceed the threshold are required to register and remit payroll tax to the relevant state revenue office.

As this is a state-based tax, you’ll have to check your local government websites for the applicable thresholds and tax rates.  If you hire staff in more than one state or territory, your obligations will extend to all the applicable areas.

4. Fringe Benefits Tax (FBT)

Fringe Benefits Tax (FBT) is levied on the non-cash benefits provided by employers to employees or their associates in connection with their employment. Common examples of fringe benefits include:

• company cars
• expense payments
• employee discounts
• interest free loans
• health insurance
• entertainment

Employers are responsible for calculating and reporting FBT to the ATO, with the tax rate aligned with the top marginal tax rate.

6. Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is a tax on the profit made from selling assets, including property, shares, and business assets. It is only payable for assets that are sold for more than they were purchased.  Businesses are subject to CGT when they sell or dispose of assets for more than their cost base. However, certain concessions and exemptions may apply, particularly for small business owners.

The amount of tax a business pays depends on several factors, including your business/corporate structure and the length of time the asset is owned. 

For example, if a sole trader sells a property that was owned for more than 12 months, they generally only pay CGT on half (50%) of the profit.  This is because the ATO allows for certain small business CGT concessions for specific business structures.  However, if the sole trader owned the property for less than 12 months, they may be liable for CGT on the full (100%) profit. 

Another difference on CGT treatment is that companies don’t have access to the same 50% discounts as other business structures.  They always pay CGT on the full 100% profit.

Capital gains tax forms part of the taxpayer (individual or business) assessable income on the annual income tax return.

7. Land Tax

Land tax is an annual tax levied at the end of the calendar year on property you own that is above the land tax threshold.  A principal place of residence (family home) is exempt, and other exemptions and concessions may apply.

You may have to pay land tax if you own, or jointly own:

• vacant land, including rural land
• land where a house, residential unit or flat has been built
• a holiday home
• an investment property or properties
• company title units
• residential, commercial or industrial units, including car spaces
• commercial properties, including factories, shops and warehouses
• land leased from state or local government.

Land tax is calculated on the total value of all your taxable land above the land tax threshold, not on each individual property. If the combined value of your land does not exceed the threshold, no land tax is payable. Your liability for each year is based on the value of all land you owned on 31 December in the previous year.

8. Other Tax Compliances

a. Single Touch Payroll (STP)

STP requires employers to report payroll information electronically to the Australian Taxation Office (ATO) at the same time they pay their employees. STP became mandatory for most employers in Australia from July 1, 2019.

b. Taxable Payments Annual Report (TPAR)

TPAR applies to businesses primarily in the building and construction industry, but it also extends to other industries such as cleaning, courier, and road freight services. Businesses in these industries are required to report payments made to contractors if they have an Australian Business Number (ABN) and they:

• Provide building and construction services (including architectural, engineering, and surveying services).
• Provide cleaning services.
• Provide courier services.
• Provide road freight services (transporting goods by road for delivery).

The information reported in the TPAR includes details such as the contractor’s ABN, name, address, and the total gross amount paid to them for the services provided during the financial year. This reporting helps the ATO ensure that contractors are meeting their tax obligations and allows them to cross-reference income reported by contractors with the payments reported by businesses.

Navigating the complex landscape of business taxes in Australia requires careful planning and compliance with regulatory requirements. Seeking professional advice from tax experts or accountants can help businesses ensure they meet their tax obligations while optimising their financial position. By understanding the main types of taxes and staying informed about changes in tax laws, businesses can effectively manage their tax liabilities and contribute to Australia’s economy.