Taxation for Australian Businesses

Understanding Australian Business Taxation Concessions

Rod Caldwell

• Publisher: Wiley
• Year: 2014
• Print ISBN: 9780730309321
• eBook ISBN: 9780730309352
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Simplify tax and save money with streamlined bookkeeping

Small businesses are often just that—small. Bookkeeping may be done by a professional outside the company, but more often falls to an employee or the business owner, who may or may not be well-schooled in the intricacies of tax law and business regulations. Tax time can end up costing small businesses a fortune in either professional fees or missed deductions every year. What if you could simplify the process and save money?

Taxation for Australian Businesses: Understanding Australian Business Taxation Concessions is the ultimate guide to tax for the small business owner. Author Rod Caldwell, 20-year veteran of the Australian Taxation Office, leads you through the process of managing your books and keeping more straightforward records to simplify the process of filing tax. The introduction of the GST and the new tax system involves a lot of new work for business owners, but Taxation for Australian Businesses eases the way by explaining the intricacies of applicable tax law, fully updated to parallel the May 2014 budget. Topics include:

• Business structures, accounting systems, and cash accounting
• FBT, private versus domestic use, and when to record a payment
• Motor vehicles, the GST, and depreciation
• Owners salary, end of period processing, and how to account for stock trading

The book explains everything you need to know and ties it all together to show you how to put the information into practice. No jargon, no textbooks, just common sense and reason. If you would like to get your bookkeeping straightened out and get back to your business, Taxation for Australian Businesses: Understanding Australian Business Taxation Concessionsis the one guide that will get you there quickly.

CHAPTER 1
A general discussion of taxation

Key areas we will cover in this chapter

• 
  Introduction — what this book covers
• 
  Am I in business?
• 
  Small business concessions
• 
  The Big 4 — income tax, CGT, FBT and GST
• 
  State-based taxation
• 
  Private use of business assets
• 
  Bookkeeping and recording systems

Defined terms we will introduce

• Micro business: used to mean a small business with a turnover under $2 million
• Small business: used in this text to mean a business with a turnover in excess of $2 million but under $25 million
• Small to medium business (SME): used to mean a business with a turnover in excess of $10 million but under $25 million
• Large proprietary (private) company (as defined by ASIC): a Pty Ltd company that satisfies any two of the following: revenue > $25m; assets > $12m; and employs over 50 staff
• Small business concessions: a set of tax concessions available to micro businesses with a turnover under $2 million
• ‘Turnover’: the aggregate total of all income made by the business from the provisions of goods or services, including your total sales, fees and commissions
• Simplified tax system: now replaced by the small business tax concessions
• Income tax: a tax on net income, on a sliding scale for individuals (progressive), fixed for companies (flat)
• CGT (capital gains tax): a tax on profits made from the disposal of an asset
• FBT (fringe benefits tax): a tax on benefits provided to business owners and employees
• GST (goods and services tax): a flat tax on the provision of most goods and services (basic foodstuff and financial services are among the exemptions)
• BAS (Business Activity Statement): a form part filled, sent to businesses by the Tax Office, usually quarterly, used as a method of payment for a number of taxes: Income Tax, FBT, withholding and the GST.
• IAS (Income Activity Statement): a form part filled by the Tax Office, sent to businesses not registered for the GST. It serves the same purpose as the BAS but without the GST component
• Payroll tax: a state-based tax on your total payroll. There is a minimum threshold (different for each state) under which no tax is payable.
• Duties: the new term for state-based stamp duties, usually levied on the purchase of property, motor vehicles and insurance, which differ between states

Is it really worth staying in business? Australian businesses feel so overwhelmed by paperwork that many consider giving up, while the ‘experts’ say that the trick to getting on top of your tax obligations is to become educated and informed. The objective of this book is to give you the knowledge and the tools that will allow you to maintain your day-to-day accounting records in such a way that your tax requirements are met with as little additional work as possible.

In the book I will discuss the process of keeping your accounting records in order so that you will comply with the taxation provisions, rather than comply with general accounting concepts, today known as the International Financial Reporting Standards or IFRS. What is the difference? Historically the tax acts have been written with little or no regard to generally accepted accounting principles! Fortunately these principles are of little use to small businesses, provided that the method used by the business to account for its business activities gives a true and fair view of the entity’s financial position.

To make the book easier to read, I will as far as possible use plain English, as distinct from the jargon often favoured by accountants. For example, I use depreciation rather than the more technically correct term decline in value. I do not say ‘you may deduct an amount to the extent that is used to produce your assessable income’ but rather use the term business expense.

Is this book for you?

The text assumes that you are a small to medium-sized business with a turnover of up to $25 million, operating as an individual or partnership, as a private company (Pty Ltd) or as a trustee of a family trust. These different tax structures are discussed in depth in later chapters.

Further, I will also assume that you may be eligible to use the taxation concessions for small business (previously called the simplified tax system); that is, you deal with the Australian Taxation Office (Tax Office) on a cash basis for both income tax and the GST. However, as you will read a little later on, the bar to entry to these concessions is set fairly low, therefore I will also be discussing the tax positions of small businesses that are ineligible to access these concessions. Small businesses that can take advantage of these concessions because they have an annual turnover under $2 million I will refer to as micro businesses, and those with a turnover above $2 million that cannot access these concessions I will refer to as small businesses.

I should highlight a point of confusion here. There is no fixed definition of a small business; rather, wherever this term is used it is defined for that purpose. Small businesses with a turnover under $2 million are often called micro businesses; those with a turnover between $2 million and $10 million and with net assets under $6 million are defined as small; those between $10 million and $25 million are defined as small to medium (SME); while those with a turnover of over $25 million that satisfy the ‘large proprietary’ definition are referred to as large. It has also been proposed that large private companies will have additional reporting requirements placed on them by ASIC that will take them outside the scope of this text.

There are many concessions available to micro businesses. My principal objective is to help you to keep you records in such a manner that you take full advantage of these concessions and, further, that your accountant does not need to spend time reworking them to meet the taxation requirements. This will help to reduce your accounting fees while increasing your knowledge and understanding of the tax accounting requirements of your business.

Conservative advice

The advice given in this book tends to be on the conservative side. By this I mean that some tax accountants can be more aggressive in their approach to accounting for tax purposes. If you use this book as a ‘bookkeeping guide’, then you will be on a very solid footing for tax, including GST, FBT and income tax. It is not intended to completely replace the professional advice of your accountant or financial advisor. Rather, it serves as a guide that will empower you when it comes time to deal with these profe...

Table of contents

• Cover
• Titlepage
• Copyright
• Dedication
• About the author
• Preface
• 1 A general discussion of taxation
• 2 Business structures
• 3 Taxable income
• 4 Capital allowances (depreciating assets)
• 5 Trading stock (inventory)
• 6 Capital gains tax (CGT)
• 7 Fringe benefits tax (FBT)
• 8 Motor vehicles
• 9 Goods and services tax (GST)
• 10 Putting it all together
• 11 Employing staff
• 12 Running a business through a family discretionary trust
• Appendix A: Effective life schedule
• Appendix B: Tax rates, 2014–15
• Index
• Learn more with practical advice from our experts
• End User License Agreement