So you have a steady flow of income but you’re stuck on how to pay yourself? First it’s important to understand what structure your business is operating under, and this will impact how you can pay yourself.
In this tax tip, we will look at three of the common business structures, being; sole trader, partnership and company, and how you can pay yourself under each of these.
As a sole trader you are the individual operator and from the tax office’s viewpoint, there is no distinction between you and the sole trader – your sole trader is attached to your own personal tax file number. All the money that you make from your business (less tax) is yours. Continue reading “#TaxTipTuesday: I have my own business. How can I pay myself?”
Looking at the tax rate for your business is something many small businesses ask about. But it all depends on the type of business structure that you have. So lets get to the bottom of it:
What is Your Business Structure?
The structure of the business will determine the tax rate. The different structures include; Sole Trader (Individual), Partnership and a Company. You can read more about different business structures here.
1. What is a Sole Trader?
As a sole trader there is no separation in business ownership between yourself and the business. Therefore there is unlimited liability, so if your business can’t pay its creditors, your own personal assets could be up for sale.
2. What is a Partnership?
A partnership requires 2 or more people and like with a sole trader, the partners individually share in the business assets as well as its liabilities.
3. What is a Company?
A company has a director(s) as well as shareholder(s). The directors are responsible for the management of the company, whereas the shareholder(s) own the company. Continue reading “TaxTipTuesday: What’s The Tax Rate For My Business?”
What is a tax loss?
A loss is made when the total deductions you claim exceed your income in the financial year.
Why are tax losses important?
It is important to know how to treat a loss when you are starting up a new company, as generally, most businesses will not make a profit in there first year of trading. This is often due to the initial investment in setting up the business and getting it running leading to a loss in the business until sales catch up. Continue reading “Tax Tip Tuesday: Can I use tax losses in my business?”
A lot of new small business owners think that a BAS (Business Activity Statement) is for them to record GST only. There are, however, three key sections (and even more for particular industries such as wine and farming/transport) that are included in a BAS. These are:
1. GST – this is where you record the net sum of (a) GST you have collected from sales and (b) credits for the GST you paid on purchases.
2. PAYG Withholding – When you pay staff wages, you are required to withhold tax from their salary. The tax withheld from their salary is included on the BAS as a PAYG Withholding amount. Continue reading “Tax Tip Tuesday – What is included in a BAS?”
It’s almost December and you still haven’t decided what to do for the team Christmas party. You’re tossing with a few ideas and you want to understand the tax implications a little better. You understand that generally speaking, when you provide your employees with entertainment (such as a party), then you need to pay an extra tax known as fringe benefits tax (FBT). However you will also want to understand whether your Christmas party is tax deductible?
The ATO’s view is that the cost of a Christmas party is tax deductible only to the extent that it is subject to FBT. As a result, Christmas Party costs that are exempt from FBT (where the costs relate to exempt minor benefits and exempt property benefits) cannot be claimed as a tax deduction. Continue reading “Is my Christmas party a tax deduction?”
In this Tax Tip Tuesday, we look at a question many business owners and employees ask ‘Are my work clothes a tax deduction?’
The ATO allows a tax deduction for a cost of buying and cleaning occupation specific clothing, protective clothing and uniforms that are distinct to your place of work. So what does this mean:
1. Occupation specific clothing
If your occupation requires you to wear specific clothing, that clothing is not something that you wear everyday or in a casual setting, and the public can easily recognise your occupation from your clothing, you can claim a tax deduction for that clothing.
A classic example is a chef’s outfit including the checked pants that they wear. Not something you really want to wear out of hours!
You can find more details on tax deductions for specific occupations here. Continue reading “Tax Tip Tuesday – Are my work clothes a tax deduction?”
In our blog post this week, we continue a series looking at the three key steps that businesses need to tackle to get their business finances sorted. And our focus this week is on how to improve your business operations.
Step 3 – How to integrate your accounting with your business operations?
So you now have an accounting system in place and want to look at improvements to your business operations. Here are some questions you should be asking:
- Sales – how are you pricing your product / service. Do you have low sales $ yet you’re always busy- there’s a problem!
- Composition of sales / How is each product performing? Are some product lines not making you any sales? Do you have product lines where you are making a million sales? They could both be as bad as each as as they’re unprofitable (we’ll look at this in Gross Profit as well)
- Look at trends across months – helps in forecasting. Busier months? What can you do to pick up business in quieter months.
What could you change in your monthly management report. Consider a breakdown of sales data so you understand where your sales are coming from and which product lines. Continue reading “Getting your business finances sorted. Improve your business operations…”
Most if not all small business owners understandably say they work from home and want to claim home office deductions. So with this being the case, we have covered off some of the areas where small business owner may be able to claim a tax deduction for occupancy and/or running expenses.
- Occupancy expenses are expenses incurred in keeping or maintaining the premises and includes things like; rent, mortgage interest, rates, land taxes and house insurance premiums.
- Running expenses as those incurred in running the small business like; phone rental and business calls, internet fees, depreciation of office furniture and equipment and any additional heating, cooling, lighting and cleaning expenses.
First thing to make sure of is whether or not the home is a place of business and if an area has been set aside exclusively for business activities. If the home is a place of business and an area has been set aside exclusively for business activities, then a portion of both running and occupancy expenses can be claimed as a home office deduction.
Unfortunately if someone just does some work at home but have a business premises somewhere else as well, they cannot claim a deduction for Occupancy expenses.
The downside of claiming occupancy costs means that if the home owner ends up selling their home, they may need to pay capital gains tax upon sale on the portion that was business related. This really needs to be considered when claiming a deduction for Occupancy Costs.
Also a small business owner who derives Personal Services Income cannot claim Occupancy Costs.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting.
For more information about Nudge Accounting’s work with startups around Australia or our Startup Spotlight series, get in touch or find out more at @nudgeaccounting. And you can see more about our fantastic client The Protein Bread Company here, @proteinbreadco or at http://instagram.com/proteinbreadco
Understanding what small business tax terms apply to your business can be confusing and complicated. So we have put together a list of some terms that will help you better understand how to manage your small business tax:
Goods and Services Tax (GST)
GST is a broad based consumer tax of 10% that is applied to most supplies of goods and services in Australia. If a small business is registered for GST, they are required to submit a Business Activity Statement each quarter. Businesses registered for GST use this statement to report their business tax entitlements and obligations to the ATO.
A dividend is a distribution of the profits of a company to its shareholders. What is important to small business owners is that they can also claim franking credits when they pay a dividend. A franking credit is an income tax credit that a corporate tax entity can pass on to its shareholders. What this means is that when you pay a dividend with a franking credit, you can claim the franking credit in your personal income tax return to offset any tax payable on the dividend.
For more information on taking money out of a company, you can read our post here.
Australian Business Number (ABN)
All small businesses in Australia are required to register for an ABN. An ABN allows you to be identified with Government departments and it is a requirement that you include it on all tax invoices issued to customers.
Super guarantee contributions
A super contribution is the amount an employer must contribute to super on behalf of their eligible employees. The rate is currently equal to 9.5% of an employee’s ordinary time earnings.
For more information about superannuation for small business, read here.