Understanding the Australia Corporate Tax Rate
When operating a business in Australia, you must understand the corporate income tax system. Knowing how much tax you need to pay and when can help you budget appropriately for the end of the income year. You need to pay tax if you’re an expat with a business in Australia.
But how do you report your taxable income, and when do you need to lodge your return? What records do you need to keep? How much tax will you pay? We’ll answer all your questions and more as we unpack the Australian corporate tax system.
Who Needs to Lodge a Business Tax Return?
Any sole trader, partnership, trust, or company in Australia must lodge a return to determine if they need to pay corporate income tax and how much to pay.
Whether or not you reside in Australia, you must lodge a return if your business makes money in Oz. Even if you do not turn any profits, the Australian Taxation Office will still want to know about your corporate income and expenses.
What Taxes Do Australian Businesses Need to Pay?
The Australian Tax Office (ATO) administers and collects taxes in Australia. Anyone who earns an income in Australia must lodge a return. You’ll save your business money and stress by paying the correct amount on time and taking advantage of eligible tax concessions.
The main taxes affecting Australian businesses include the following:
- Company (income) Tax: Australian resident and non-resident companies must pay company tax. The rate is the same for residents and non-residents but may vary under limited circumstances, depending on the industry or business structure.
- Capital Gains Tax (CGT): Australian companies and foreign entities must pay CGT on any capital gain through the disposal of assets. You pay Capital Gains Tax as part of your assessable income tax. Foreign businesses are subject to CGT on assets acquired and used in Australia.
- Goods and Services Tax (GST): GST is a consumer tax on goods and services sold or consumed throughout Australia. Companies must register for GST with the ATO.
- Payroll Tax: A state-by-state tax on the wages you pay your employees in Australia
The Australian government sets the tax rate, which may change each year. Each state or territory may have further taxation requirements for resident and non-resident companies. Speak to a tax agent to find out what you owe.
How Does Income Tax Work?
Corporate income tax works much the same way as individual tax rates. Resident companies – those residing and operating in Australia as tax-residents – must pay Australian income tax on their worldwide income. This means you must pay corporate tax to the ATO on your earnings from across the globe.
However, non-resident companies, like non-resident citizens, must only pay Australian income tax on Australian-sourced income.
What if you’re a resident of two countries? If you operate your business in Australia and overseas, you might be a tax resident of both countries. In such cases, you would look for a double taxation agreement. Australia has a DTA with more than 40 jurisdictions. The DTA will outline to who your business pays tax.
As with individual tax, the corporate tax combines all your assessable income (including capital gains and income) to determine your full company tax rate.
How Much Tax Should My Business Pay?
Companies can choose to make tax payments monthly, quarterly, or annually. The amount you pay depends on your income. To determine how much tax to pay, add all your income and subtract any allowable deductions.
‘Income’ includes all gross income (i.e., before tax) from your business activities and other non-everyday income, such as capital gains. It does not include taxes like GST; you must report these on your BAS.
Unlike individual taxes, the corporate tax rate is a lot more straightforward. For most companies, you will pay a tax rate of 30% at the full company tax rate. However, small businesses are eligible for a lower company tax rate of 25% for 2022-23 and future years. To qualify as a small business, you must either:
- Meet the aggregated turnover threshold of less than $50 million
- Have less than 80% of your assessable income as base rate entity passive income (for example, interest, dividends, or rent)
How Do Corporate Tax Deductions Work?
You can deduct business expenses from your taxable income to reduce the tax you must pay.
Allowable tax deductions include most business expenses, such as:
- Management fees
- Payroll taxes
What is not tax-deductible?
- Entertainment costs
- Holiday pay
- Sick leave
- Interest on borrowings where debt is 1.5 times greater than equity
You can carry forward prior year losses to the current or future financial year to offset any profit or capital gain. You must pass the Same Owner or Same Business test to carry forward capital losses. In some circumstances, you can offset previous profits with current losses. Seek professional advice about carrying capital losses forward or backward.
How to Lodge a Business Tax Return?
Lodging your return is the first step to paying taxes on time. While the ATO will calculate how much you owe, it’s a good idea to work out what you owe beforehand so you can properly budget. For instance, if you know you will need to pay 30% of your earnings, ensure you keep back 30% of your profits (after deductions).
Here are the steps to lodge your return.
1. Check the Requirements for Your Business Type
You’ll need to lodge a return whether or not you meet the tax threshold. Firstly, you need to check what the requirements and rules are for your business structure.
- Sole trader (e.g., owning an investment property): Lodge an individual return with all your business income and a separate business depreciation schedule. You don’t need to lodge separate returns for personal and business income.
- Partnership: Your partnership will have its own tax file number, but you don’t pay income tax on the profits. Instead, each partner will report their share on their own return. Your partnership will also need to lodge a return under its own TFN.
- Company: A company is a separate legal entity and must lodge a company tax return to pay taxes on the company’s income. Individual directors need to lodge personal returns too.
- Trust: A trust has its own TFN, and you must lodge a return.
Not-for-profit organisations may benefit from tax concessions and a reduced tax rate.
2. Understand BAS Requirements
When you register for an Australian Business Number (ABN) and GST, the Australian Taxation Office will send you a Business Activity Statement (BAS) when you lodge your return. The BAS allows companies to report and pay for other taxes, such as:
- Goods and services tax (GST)
- Luxury car tax
- Wine equalisation tax
- Fringe benefits tax (FBT) instalments
- Pay-as-you-go (PAYG) withholding tax
- Pay-as-you-go (PAYG) instalments
You can complete your BAS through a tax agent or online.
3. Find Out When the Tax Return Deadline
Next, you must work out when to lodge your return. If you work with a registered tax agent, they will inform you of the deadlines. Registered agents can access later deadlines for their clients.
However, if you choose to lodge your return yourself, the deadline is the 31st of October each year. This applies to sole traders, partnerships, and trusts. If the 31st of October falls on a weekend, the due date is the next business day. Companies must lodge their returns by the 28th of February.
BAS deadlines are different; they are typically quarterly or monthly.
4. Lodge Your Tax Return or BAS
Finally, it’s time to lodge your return. Ensure you prepare everything well ahead of time, so you don’t miss the deadline. Depending on how complicated your business taxes are, you might lodge your return yourself or consult a professional.
You can lodge your return in several ways:
- With a registered tax agent, like Odin Tax
- Online with a myTax account if you’re a sole trader
- Online with a standard business reporting software if you’re a company, trust, or partnership
- By paper
To lodge your BAS:
- With a registered tax or BAS agent
- Online with myGov, online services, or standard business reporting software
- By phone
- By paper
5. Pay Your Taxes
Once you have submitted your tax return and BAS, the ATO will calculate what you owe. Typically, you’ll have 21 days from the assessment to pay any taxes owed.
How to Lodge a Business Tax Return From Overseas?
If you reside overseas, you can enlist an Australian registered tax agent to help lodge your return. Working with a tax agent is the simplest way to ensure you submit an accurate return on time.
Alternatively, you can submit your return online. You must inform the ATO that you are moving overseas within seven days of leaving Australia.
Business Records You Need to Keep
You need to keep income tax records to properly lodge your return and pay the correct amount of tax. Here are a few of the records you should keep:
- Income and sales invoices, receipts, cash register tapes, and cash sales
- Tax invoices, chequebook records, and expense receipts
- Debtors and creditors, stocktake sheets, and depreciation schedules
- Bank statements and loan records
- Goods and services (GST) tax invoices from suppliers
- Your tax file number (TFN) and withholding declarations
- Records of wages, benefits, and other payments
- Employee superannuation records
- Fringe benefits tax (FBT) details
The Australian Taxation Office offers advice to help you keep tax records. Alternatively, tell our team about which receipts and records you need to keep to lodge your return.
Australian Corporate Taxation
Understanding corporate income tax is complex but essential for all businesses operating in Australia. While you may not live in Oz, you need to determine if you still have tax obligations. Missing tax deadlines or not paying tax liabilities could have severe consequences. Speak to our team about your corporate tax responsibilities.
Frequently Asked Questions
What Is Australia's Corporate Tax Rate 2022?
The corporate income tax rate for most businesses in Australia is 30%. However, smaller businesses earning less than $50 million can pay a lower rate of 25%.
Which Country Has the Best Corporate Tax Rate?
Many countries around the world have a tax rate of nearer 50%. In Australia, the corporate tax rate is 30% for most companies and 25% for smaller businesses.
What Do I Need to Give My Accountant for Small Business Taxes Australia?
You should supply your accountant or tax agent with receipts and records of all your business income and expenses to ensure you pay the right amount of tax. Deducting business expenses can save you from paying too much tax.
What Tax Assistance Is There for Business Owners?
Small businesses and not-for-profit companies may receive a Capital Gains Tax concession. You may be eligible for a lower tax rate if your company earns less than $50 million.
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