It is essential to understand your tax obligations when owing and operating your own business. This ensures that you are prepared to pay the accurate amount of tax that you owe each year. Tax obligations are imposed by stringent legislation and regulatory frameworks with harsh penalties for non-compliance. It is, therefore, essential to remain educated on the current tax obligations for business owners.
Reporting Obligations
Businesses are subject to stringent reporting requirements in relation to the tax and superannuation contributions made on behalf of employees. Traditionally, businesses were required to report their employee payment information and PAYG withholding at the end of each financial year. However, the introduction of Single Touch Payroll (STP) has transformed the reporting of tax and superannuation information by employers.
Single Touch Payroll
The introduction of STP has heralded a new era in the financial reporting obligations imposed on businesses. Businesses with 20 or more employees have become subject to the STP reporting provisions since the 1st of July 2018. Businesses with 19 employees or less must commence STP reporting by the 1st of July 2019.
Pay-by Pay Reporting
STP reporting regulations require employers to update the Australian Taxation Office (ATO) with tax and superannuation information after every payroll. This removes the obligation on business owners to lodge a Payment Summary Annual Report at the end of the financial year. Instead, business owners are required to simply finalise the STP data that has been submitted to the ATO after every pay cycle, confirming that they have completed their financial reporting for the financial year.
As the ATO will have an accurate record of all contributions made during each pay cycle for every employee, business owners are no longer required to provide a Payment Summary (sometimes referred to as Group Certificate) at the end of a financial year. Instead, this information will be available at any time using the ATO online services.
Business Activity Statements (BAS)
If your business is registered for GST you have a legal requirement to lodge a Business Activity Statement (BAS) with the ATO. The BAS reports on the following required payments:
Goods and Services Tax (GST): GST is a tax of 10% that applies to most services and goods that are sold or consumed in Australia. When you complete your BAS you are required to report and pay the accurate amount of GST that your business has collected in the financial year.
Pay As You Go (PAYG) Withholding Tax: PAYG withholding requires business owners to withhold a tax from specified payments made to their employees or third parties. When you complete your BAS you are required to report all withheld amounts and provide payment to the ATO for the accurate sum.
Fringe Benefits Tax (FBT): FBT tax refers to the tax that employers are required to pay on any benefits in addition to a wage that you have conferred on an employee or an associate to that employee. Popular examples of fringe benefits that are subject to taxation obligations include:
- Reimbursing an employee for an expense
- Allowing an employee to utilise property, such as a car for private purposes
- Providing a discounted loan to an employee
It is important to note that significant penalties apply for failing to accurately report and disclose your tax and financial records.
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Tax obligations and reporting requirements are constantly evolving – often for the better. As regulatory bodies move toward the Digital Age, the way that business owners are required to submit their financial reports is changing. It is important for business owners to keep track of the changing climate, ensuring that they are well prepared for the shift into digital reporting.