Tax fundamentals in Australia – key concepts every business owner should know
Australian taxes are complex, but understanding the basic concepts and definitions makes it easier to stay compliant. There are different types of tax that can apply to you, depending on your circumstances.
Income tax
The most widely applicable tax — it applies to everyone who earns money, whether through wages, business, investments, or other sources. Depending on your legal structure, different rates may apply.
Capital gains tax (CGT)
This tax applies to profits made from the sale of assets such as real estate, shares, or other investments. CGT is part of the income tax regime — it is added to the individual’s income and taxed at applicable rates.
Land tax
Paid by landowners and calculated on the value of the land. The main residence is usually exempt, and depending on the state or territory, there may be tax-free thresholds.
Superannuation contributions tax
Payable by the Superannuation Fund. A 15% tax is charged on concessional contributions — those which you or your employer claim as a deduction.
Division 293 tax
If your income (including super contributions) exceeds $250,000, you will be charged an additional 15% tax on all concessional contributions. You may elect your fund to pay this tax on your behalf.
Goods and services tax (GST)
GST is the Australian equivalent of VAT in Europe. Registered businesses charge it on the value of goods and services sold domestically. You must register for GST if your annual turnover is likely to exceed $75,000. When registered, you can claim back GST charged on goods and services you purchased in the course of your business.
Fringe benefits tax (FBT)
When employers provide additional benefits to employees or their associates (e.g., company cars), they may be liable to pay FBT, calculated on the value of those benefits.
Excise duty
Companies that produce or wholesale certain goods — such as alcohol, tobacco, or fuel — must pay excise duty.
Luxury car tax (LCT)
A tax on new (and in some circumstances, used) luxury vehicles. Usually, car dealers charge this tax to customers.
Customs duties
Companies importing goods into Australia are required to pay customs duties based on the type and value of the imported goods.
The Australian financial year
The financial year in Australia starts on 1 July and ends on 30 June.
Quarters are aligned with the financial year:
- Q1 — 1 July to 30 September
- Q2 — 1 October to 31 December
- Q3 — 1 January to 31 March
- Q4 — 1 April to 30 June
PAYG instalment
PAYG instalments are prepayments of your income tax for the current financial year, paid in advance. Taxpayers can choose to enter the system voluntarily or are automatically enrolled by the ATO.
PAYG withholding
If you have employees, you must withhold tax from the wages you pay them and remit it to the ATO on their behalf. This withholding must be reported via Single Touch Payroll and on your Activity Statement. The amount to withhold depends on the wages paid — the ATO produces tables to follow, but it’s best to use dedicated payroll software.
Business activity statement (BAS) and instalment activity statement (IAS)
An Activity Statement is a form used to report various taxes and instalments. If the list of taxes includes GST, it’s a BAS. If not, it’s an IAS. Other taxes that can be reported on an Activity Statement include:
- GST
- PAYG Instalments
- PAYG Withholding
- Fringe Benefits Tax
- Luxury Car Tax
- Wine Equalisation Tax
- Fuel Tax Credits
These obligations are usually due quarterly, but can vary. Different tax types may also have different reporting periods (e.g., quarterly BAS for GST and monthly IAS for PAYG Withholding).
Understanding these key taxes helps you manage your obligations with confidence. With the right setup, it becomes a routine part of running your business.