Basic tax explained for startups & small business

If you’re planning to start a business or about to start one, welcome to the world of business taxes. Here in this world, your new best friends will be called GST, BAS and PAYG.

Say hello to them:

  • GST: Goods and Services Tax
  • With GST comes the BAS: Business Activity Statement
  • IAS: Instalment Activity Statement
  • PAYG: Pay As You Go withholding and instalments

A Short Breakdown

1. GST

GST is a tax based on the transactions you make in your business – that is, the sales and purchases. There are some GST-free sales and purchases, like overseas sales and purchases, but in general the GST is 10% of most of your business transactions. You need to register your business for GST if you currently earn gross sales of $75,000 or more in a financial year.

You can voluntarily register your business for GST if you earn less than this amount. You may want to voluntarily register if you are incurring a lot of expenses like when you are in startup mode. That way you’ll get back dollar for dollar the GST you are paying for your business purchases. This can help with the cash flow for your business.When you invoice your customers you need to charge 10% GST, and your invoices need to look a certain way to comply with the tax rules.

Refer to: ATO info on GST

2. BAS

When your business is registered for GST, it actually becomes a tax collector for the government, as the GST you collect on your sales, less the GST you paid on your purchases, has to be remitted to the government via the BAS. This needs to be completed annually, quarterly or monthly, depending on the business reporting obligations.

It’s annually if you are not required by law to register for GST and quarterly if you are required to be registered for GST (you earn Gross Sales of $75,000 or more). It’s a monthly requirement if you import goods and are required to be registered for GST by law.

Refer to: ATO info on BAS


If you employ staff, then wages tax or PAYG withholding must be deducted from the gross wages and remitted to the tax office via the BAS or IAS each quarter or month, depending on the amount of wages you pay your staff.

Refer to: ATO info on PAYG witholding

When your business makes a profit, and you start paying tax on this profit, then PAYG income tax instalments will be payable via the BAS. Note: Once you lodge your first business tax return, your business will be entered into the PAYG income tax instalment system, and you will need to pay tax on your business income in the year that you earn it via the BAS each quarter.

Refer to: ATO info on PAYG installments

The tax system in Australia runs from 1 July to 30 June, and the quarterly periods are: 1 July to 30 September, 1 October to 31 December, 1 January to 31 March and 1 April to 30 June each financial year.

Tax Deductions

With business taxes, you also get tax deductions. Here’s my list of the top 3 tax deductions for businesses:

1. 100% tax deductions are available for asset purchases that cost less than $6,500, including cars.

Small businesses, whether run by sole traders, partnerships, trusts, or through companies, are now eligible to instantly write off new business assets costing less than $6,500, including cars costing $6,500 or less, for as many assets as they purchase from 1 July 2012. That’s a 100% tax deduction right there.

2. Businesses are now entitled to write off the total balance of their general asset pool where the value of the pool is less than $6,500.

Assets costing $6,500 or more can access accelerated depreciation by being consolidated into a single pool and depreciated at 15% in the first year and 30% flat each year after, with no need for prorating the depreciation claim in the first year.

Tip 1: The $6,500 threshold is applied on a GST-exclusive basis if the business is registered for GST.

Tip 2: The $6,500 threshold is applied on an asset-by-asset purchase basis. There’s no need to aggregate identical or substantially identical assets to claim the threshold.

3. Instantly write off of $5,000 of the cost of a car costing $6,500 or more.

Small businesses can now instantly write off the first $5,000 of the cost of a car when purchased from 1 July 2012, whether new or secondhand. Cars, motorbikes, vans, trucks, utes, and scooters all fit the definition of a motor vehicle and are eligible for the instant $5,000 upfront deduction.

Tip: The business-use percentage of the car as per your logbook affects how this is claimed. If the business-use percentage times the cost of the car is less than $5,000, then you get an instant 100% tax deduction. If the business-use percentage times the cost of the car is more than $5,000, then the first $5,000 is a tax deduction. The remainder of the cost of the car is consolidated into a pool and can access the accelerated depreciation rate of 15% in the first year of allocation and 30% each year after that.

It’s important to meet all your tax and compliance obligations this EOFY.

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