Our Gold Coast taxation lawyers are experienced in all manners of taxation law matters and have represented clients on disputes regarding tax assessments. We are adept at providing insolvency law advice and asset protection advice to ensure that clients are properly exercising their inherent right to minimise their taxation obligations.
Taxation implications for small businesses
For small businesses, there are a number of essential tax components to understand as designated by Australia’s modern taxation legislation, the Income Tax Assessment Act 1936 (Cth) (‘Act’) as well as the Fringe Benefits Tax Assessment Act 1986 (Cth) for the purposes of taxing non-cash benefits received. In addition, the Taxation Administration Act 1953 (Cth) contains provisions that outline the administrative aspects of Australia’s taxation regime, ranging from taxation objections and reviews to appeals under various mechanisms for tax collection. Of course, Australia is also subject to the broad reaching A New Tax System (Goods and Services Tax) Act 1999 (Cth) and the A New System (Goods and Services Tax) Administration Act 1999 (Cth), which are the legal mechanisms that introduced Goods and Services Tax (‘GST’).
Australia’s taxation regime is also notable for the abundance of regulatory guidelines provided by the Commissioner for Taxation, which provides direction for legal practitioners on taxation rulings, taxation determinations, miscellaneous tax rulings, practice statements, Australian Taxation Office (‘ATO’) interpretive decisions as well as Product Rulings and Class Rulings.
As a small business owners you must consider at the first your obligations regarding taxable income, which is calculated as the remainder of your assessable income minus any applicable deductions. Your business may also qualify for any one or more of a series of available tax deductions and offsets that can result in lesser amounts of taxation that must be paid.
At Ramsden Lawyers, we regularly assist businesses in determining whether a source of income or asset is subject to the Australian taxation law regime, including a determination of whether a particular asset has crystallised (“realised”) as per the legislation. It is also important for individuals to understand that a source of income that can be construed as a mere “gift” or a windfall gain (such as a competition prize or gambling winnings, so long as it is not the individual’s profession) is not income as contemplated by tax law. There are a number of other exclusions as to what constitutes income, including contributions to capital and capital gains (note that capital gains is taxed by Capital Gains Tax (‘CGT’).
As a general rule, an amount that is earned as a product or incident of a person’s employment or as a reward for services rendered is considered income – including salary, wages, bonuses, tips, overtime, annual and long service leave payments, commissions and director’s fees. Note that income derived from holding capital assets (such as dividends, interest, rent and any royalties) is also considered ordinary income for tax purposes.
Tax instalments deducted from gross salary or wages via the Pay As You Go (‘PAYG’) system are paid to the ATO and can be found on a group certificate issued. It is compulsory as a business to comply with PAYG withholding obligations where staff are employed, meaning that the amount must be deducted from salary and wages payments.
- Responding to Director Penalty Notices
- Dealing with Statutory Demands, Bankruptcy Notices and garnishee notices from the ATO
- Seeking remission of interest and penalties via negotiations with the ATO
- Implementing extended payment plans
- Advising on tax residency concerns, especially where the ATO alleges an individual is an Australian resident for tax purposes or where the ATO alleges that you have not disclosed income earned internationally
- Creating optimal legal structures for a business migration to or from Australia
- Applying for research development grant tax concessions
- Advising on payroll tax and understanding ways to minimise or avoid payroll tax
Taxation For Small Businesses
There are multiple taxation considerations that our Gold Coast lawyers assist our clients in determining, with some sources of taxation law being at the State level in the relevant jurisdiction and others being administered at the Federal level. The first consideration should be for income tax, which is a Federal tax levied against the taxable income of a business.
CGT is an income tax that is payable on capital gains considered assessable. CGT generally arises in the context of a business that generates a capital gain or loss via the selling off of capital assets such as any vehicles used by the business or plant and equipment that is used to facilitate production of goods or the rendering of services. Note that a capital gain or loss can also be made on the disposal of business assets ranging from goodwill to business licenses and business premises. It is typically upon the sale of a capital asset that CGT will arise, though there are a whole range of CGT events that small business should understand. Fringe Benefits Tax (‘FBT’) must also be paid by a small business if it is an employer for any benefits it provides to employees or their associates. Some common examples of income tax includes providing an employee with a car or paying for non-work related expenses. As an employer, you should keep separate FBT records to ensure you are satisfying your record-keeping and reporting requirements as a business.
GST is another important consideration for businesses as it applies widely as a flat-rate, consumption-based tax for the general public of 10%. In the context of small businesses, it is essential to understand GST exemptions (such as fresh food, certain exports and medical supplies). In some instances even real estate will be subject to GST – notably for the sale of commercial property (though residential property, businesses premises sold as part of a going concern and rural property are generally exempt). As a business operator you may be entitled to receive a reimbursed for GST attaching to goods purchased for the purposes of providing the goods or services supplied to consumers in the course of their business.
If your business has a current GST turnover in excess of $75,000, it is a legal requirement that the business be registered for GST. Part of the obligations resulting from registering for GST includes completing a quarterly Business Activity Statement that is then lodged with the ATO. GST collections must then be provided to the ATO.
As a business owner, you have a number of taxation obligations in addition to the taxation itself. For example, any taxpaying business must keep records of the transactions it makes in the course of trade. As a taxpaying entity it is the business’ responsibility to ensure that adequate records are kept as evidence of both income earned and expenses incurred as a result of the business. These records are then utilised to report to the ATO on the range of taxes a business is liable to account for including GST, PAYG withholding, FTB and income tax.
Payroll tax must be paid on the wages a business pays to its employees if a State-prescribed threshold is reached. Payroll tax includes in its calculation salaries, allowances, directors duties, superannuation and the gross value of fringe benefits. The capacity in which a business engages its workers (i.e. as an employee or contractor) stands to make a significant difference in a company’s taxation liabilities and it is worth consulting expert business lawyers on the benefits and detriments of engaging workers under either arrangement. There are also a series of payroll tax exemptions for certain contracts on which our Gold Coast practice can advise you upon receiving your enquiry.
Transfer duty (formerly stamp duty) is payable where a business undertakes a transfer for ‘dutiable property’, which includes real estate, shares and businesses as well as motor vehicles, leases, mortgages and even insurance policies. At transfer duty is administered at the State level, each jurisdiction implements its own transfer duty rates. Some business will also need to consider the impact of land tax, which is a State-based tax payable by certain real estate owners on the value of land on a yearly basis.
Business Expansion Tax
For businesses that are in the growth stage of development in the business lifecycle, your taxation obligations may change as the business grows. For example, if your business expands into other States it is important to consider the differences in the way that each State assesses and charges taxation, which is relevant for payroll tax, transfer duty and land tax. It may also be the case that where your business was once able to access a small business tax concession that it no longer can after expanding to a certain size. Our expert business lawyers can advise you on the taxation implications of business expansion and, where possible, structure your business in a way that preserves the ability to access the small business taxation concessions for the longest period possible.
Furthermore, an expanding business may incur additional tax obligations if it expands overseas, in which case the obligations of Australian businesses to account for profits made overseas must be considered. The tax treatment of foreign income is variable in accordance with the laws of the particular jurisdiction in which your business chooses to operate. An increase in employees may also result in an increase in PAYG withholding obligations. Where it is no longer possible to access the small business our expert business lawyers can tender advice to you on how to maximise the tax concessions for which you remain eligible including CGT concessions, fringe benefits tax concessions.
At Ramsden Lawyers, our business lawyers are experts in determining the small business taxation exemptions that apply to business taxes. In short, in order to be eligible for the small business taxation exemptions, a business must satisfy one (1) of the following criteria:
(a) Have an aggregated turnover of less than $2 million; (b) Have an actual aggregated turnover for the current year of less than $2 million; (c) Have an estimated aggregated turnover for the current year less than $2 million in addition to an aggregated turnover for the previous two (2) years less than $2 million.
If the small business tax concessions can be accessed, they stand to provide a business with tax exemptions regarding CGT and retirement as well as the fifteen (15) year small business exemptions). In addition, a qualifying small business can receive a 50% reduction on CGT over active assets, rollover relief (where you buy a replacement asset). Beyond these options, the small business tax concessions generally offer favourable deductions and depreciation rules that can assist small businesses looking to maximise their profitability.
Taxation is also an important consideration for trustees, who may be liable to pay tax on the part of the net income of the trust that has not been assessed to a presently entitled beneficiary or the trustee on behalf of a beneficiary. A trustee must also pay taxation on shares of the net income of a trust in respect of beneficiaries, irrespective of whether or not the beneficiaries are acting in their capacity as trustee of another trust estate. The same applies to shares of the net income in respect of beneficiaries who are entitled to a share of the income but who are “legally disabled”. If a trust is a special disability trust and the principal beneficiary is an Australian resident at the end of the income year then the whole of the net income of the trust is liable to tax. Finally the trustee is also liable to pay tax on the amount of the capital gain if an election has been made for the trustee to be assessed on a capital gain of the trust.
The rate of tax payable varies depending on the type of trust and the beneficiary’s individual circumstances.
It is also important to understand that Employee Share Schemes (‘ESS’), which give employees shares in the employer’s company for a discounted price (or alternatively an option to buy company shares in the future), also have taxation consequences that can be either concessional or non-concessional in nature. There are a number of tax concessions that apply to an ESS, including the ability of an employee to defer the payment of tax until the point in time where they exercise his or her share option, with an upward limit to defer tax liability for fifteen (15) years. As an employer who utilises an ESS (often the case for start-ups), there are specific ESS obligations to consider depending on when the employee obtains his or her interest in the ESS.
Where available, Ramsden Lawyers advises its clients to take advantage of the tax offsets available to companies who undertake research and development that better Australia. If a business conducts research and development recognised by the government as assisting Australia to boost the Australian economy, an entity can receive a refundable 45% tax offset for companies not controlled by income tax exempt entities and that have an aggregated annual turnover below $20 million, or otherwise a non-refundable 40% tax offset for eligible entities.
To be recognised as an eligible entity, your company must be a research and development entity, carry out research and development activity, register its activities with AusIndustry and incur notional deductions of at least $20,000 on eligible activities.