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Australian Tax Office (ATO)

Tax is perhaps one of the business owner's least favourite subjects. We all have to pay tax, but putting aside noble ideals of paying for schools, roads, hospitals, community safety and welfare, we would all prefer to be making a bit more for ourselves.

 
     
 

For the Greater Good

Fortunately, the tax man also wants your business to be successful, so you earn enough to pay taxes and employ more staff for them to pay more taxes too. So the more successful your small business becomes, then the more successful Australia becomes as a nation.

  • Small businesses with less than 20 employees turning over less than $2 million per annum make up 95% of the over 2 million actively trading businesses in Australia.

  • Small businesses contribute 34% of private sector economic output in Australia.

  • Survival rate of small business in Australia over the four years 2007 to 2011 at the height of the Global Financial Crisis (GFC) was 59%.

  • If you are a business owner reading this today, then congratulations on surviving the GFC. Your country needs you and the tax man wants to help you be successful so you can continue paying taxes.
 
     
 
 
     
 

Importance of Benchmarking

The Australian Tax Office developed small business benchmarks to compare the tax returns and activity statements of small businesses against other similar businesses operating in similar industries. The original purpose of these small business benchmarks was to identify potential tax evasion by not declaring some or all of the business' income or by overstating deductable expenses.

A side benefit of these publicly available benchmarks is the business owner can compare his or her costs and margins against the industry average to highlight areas that need attention or improvement. By referring to industry benchmarks, the business owner can see if he or she is paying too much for Cost of Sales, staff payroll, rental on premises, or whether the business is paying the business owner a fair return compared to similar businesses.

Benchmarks are also available from industry association bodies and from professional fee for service providers. The ATO version is free and drawn from the largest compulsory reporting database in Australia.

Read more about small business benchmarks:


 
     
 
 
     
 

Business Activity Statement

With the business owner checking benchmarks, being one of the hardy 59% survivors, employing a few staff, and consuming and generating outputs, this all needs to be captured and reported in the Business Activity Statement (BAS).

  • GST (Goods and Services Tax)

  • PAYG (pay-as-you-go)

  • FBT (Fringe Benefits Tax)

  • Luxury Car Tax

  • Wine Equalisation Tax

  • Fuel Tax Credits

Larger businesses with a turnover exceeding $20 million per annum or PAYG obligations greater than $25,000 per annum are required to lodge BAS every calendar month.

Most small businesses, however, have the option to lodge BAS quarterly. If you choose to do this via your accountant for a small fee, this should be relatively painless provided you keep good records.

If you choose to lodge your own BAS, this may initially be daunting though the ATO is willing to help with a free No Cost onsite assistance. Register online or via toll free number and the ATO will send an advisor to your place of business and walk you through the process.

Regardless of whether you choose to have your BAS prepared by an accountant or DIY, a common mistake is to spend the accrued taxes and not have sufficient monies available when BAS payment becomes due. It is therefore good practice to either put aside taxes as they are accrued into a separate bank account or to monitor Cash Flow to ensure there are sufficient incoming funds on the due date.

Read more about managing invoices, payments and record keeping:


     
 
 
     
 

Key Tax Tips

At a minimum, make use of the free No Cost onsite assistance offered by the ATO.

  • Check how the business compares against ATO industry benchmarking.

  • As a minimum keep cash book records of all monies in and out of the business.

  • Remember the retention period which as a guideline is typically seven years.

  • Electronically scan paper documents if you require easier search, protect paper based archives and note that thermal paper is unstable and should be converted into more permanent forms.

  • Electronically scan paper documents if you require easier search, protect paper based archives and note that thermal paper is unstable and should be converted into more permanent forms.

  • A good accountant need not be expensive but can make the financial process much easier.