Tax and Your Business Structure

Compliance with ATO requirements and calculation of the correct amount of tax payable will differ depending on your business structure.

Sole traders

Sole traders declare their business income (or loss) in their personal income tax returns and pay tax at individual tax rates.

When the ATO receive an income tax return for a sole trader, partnership or company they advise the business owners if they are to pay PAYG instalments. Installments paid are credited against the income tax assessment raised after you lodge your income tax return at the end of the financial year.

Until you start paying PAYG instalments you need to budget for the income tax you will have to pay. You can choose to put money aside in a seperate account, or you can arrange with the ATO to make voluntary payments.

Partnership

A partnership must lodge a tax return but the partnership doesn't pay tax. Instead, each partner pays tax on their share of net partnership income according to the individual tax rates.

PAYG instalments paid by partners are credited against their personal income tax assessments.

Company 

A company is a separate legal entity and has its own income tax liability. A company pays income tax on its assessable income (profits) at the company tax rate, which is currently 30%.

There is no tax-free threshold for companies. Owners, directors, and office holders declare salary, wages, directors fees and dividends received from the company on their personal tax return and pay tax according to the individual tax rates .

Trust 

A trust holds property or income for the benefit of others (beneficiaries). Generally, a trust will have no tax liability where the whole of the net trust income is distributed to adult resident beneficiaries. Each beneficiary pays tax on their share of net trust income according to the individual tax rates .

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