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Common business tax registrations and their applications

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Business tax is a complicated area for many businesses and yet it is an area that businesses simply can’t afford to mismanage. Depending on your industry and business operations, there are certain business tax registrations that your business needs to apply for and comply with at all times.

The most common tax registrations for small business includes:
  • Tax file number (TFN)
  • An Australian business number (ABN)
  • Goods and services tax (GST)
  • Pay as you go (PAYG) withholding.

If you are in doubt as to whether you need apply for these tax regulations, here are the basics for each, as provided by the Australian Taxation Office (ATO).

Tax file number (TFN)

A tax file number, the most common form of tax registration, is the unique number assigned to an individual or organisation by ATO. Most individuals, whether they run a business or not, should already have their own tax file number and if you operate as a sole trader, your individual TFN can be used for both personal and business taxation.

For partnerships, companies or trusts, a separate TFN is needed. This can be applied for online when registering for an ABN.

Australian business number (ABN)

An ABN is a more specific type of TFN, applied specifically to Australian businesses. While ABNs are not compulsory, if in business, it will be easier to register for other business taxes, such as GST and PAYG, and avoid refusal of payment for your goods and services. By law, businesses must withhold 46.5 per cent of any payments they make to you unless an ABN is quoted. Once your ABN is received, ensure you put your ABN on business stationery and all invoices to avoid payment being withheld.

To apply for an ABN, lodge an application through the Australian Business Register (ABR).

However, note that before applying for an ABN, it is crucial that an Australian Company Number (ACN) is allocated to your business by the Australian Securities and Investments Commission (ASIC). An application can be lodged online at their website.

Only one ABN is needed for each entity, regardless of the different branches of business. For instance, if you own a bookshop with a café, both arms of the business only require one ABN. However, separate companies, partnerships or trusts must register for separate ABNs.

Goods and services tax (GST)

You must register for GST, if any of the following apply to your business:

  • Your business’ current or projected annual GST turnover exceeds $75,000.
  • Taxi travel is provided.
  • You intend to claim fuel tax credits.

If your annual GST turnover is below $75,000, registering for GST is optional.

It is important to note that turnover is constantly monitored. If at any time it exceeds $75,000, the ATO gives a 21-day window to register for GST before penalties are incurred.

Pay as you go (PAYG) withholding

According to ATO, Pay as you go (PAYG) is a “single, integrated system for reporting and withholding amounts and tax on business and investment income”. If your business makes payments you withhold amounts from, you must register for PAYG withholding.

Instances where you may require PAYG include:
  • If payments are made to an individual as an employee (including yourself if your business structure is a company or trust). These payments can be in the form of salary, wages, commissions or allowances.
  • If the business makes payments to you as a director.
  • If payments are distributed to contractors, such as in a labour hire arrangement situation.
  • If your business withholds 46.5 per cent of payments to suppliers for not quoting or showing their ABN.

Note, if you are a sole trader or partner, you do not receive a wage and therefore do not require PAYG. Any money received from the business constitutes drawings, not wages.

Other business tax registrations

Other less common business tax registrations include, but are not limited to, super tax, fringe benefits tax, luxury car tax and fuel tax credits. These should be registered for if applicable to your business. For more information, consult ATO online, via email or over the phone.

To avoid penalty, your business must be aware of and comply with all laws, as specified by ATO, regarding business tax.  

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, September 29, 2010

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