Registering for tax
To ensure you are complying with all regulations it is important to know which registrations apply to your business.
The most common registrations required by small business are:
Tax file number (TFN)
A TFN is a unique nine-digit number issued by the Australian Tax Office (ATO). All entities need a TFN.
If you’re operating your business as sole trader, use your individual TFN for your business and personal dealings with the ATO.
If you’re operating your business through a partnership, company or trust, it will need a separate TFN.
You can apply for a business TFN when registering for an Australian business number (ABN).
The ATO has more information about registering a TFN.
Australian Business Number (ABN)
An ABN is a unique 11-digit number that makes it easier for businesses and all levels of government to interact with you.
You will need an ABN to:
- operate in the GST system, including claiming GST credits
- confirm your business identity to others when ordering or invoicing
- avoid pay as you go (PAYG) tax on payments you receive
- set up a myGovID and a Relationship Authorisation Manager (RAM) account to conduct online transactions with government agencies.
If you don’t register for an ABN, other businesses making payments to you will withhold tax at the top rate of 47 per cent. Similarly, if a supplier does not provide you with their ABN you will need to withhold 47 per cent from their payment unless they provide you with a statement by a supplier form.
If you plan to run your business through a company, you need to register it with the Australian Investments and Securities Commission (ASIC) and obtain an Australian Company Number (ACN), before you can get your ABN and tax registrations.
Some organisations advertise to register your ABN for a fee. It is free to apply for an ABN with the Business Registration Service. You can apply online and in most cases your application will be processed immediately. In some circumstances your identity may need to be verified and this may delay the processing of your application.
Goods and services tax (GST)
GST is a tax applied to most goods, services and other items sold or consumed in Australia. The current GST rate is 10 per cent.
You need to register for GST if your business:
- has a current or projected turnover of $75,000 or over
- provides taxi travel
- wants to claim fuel tax credits.
If you are not registered for GST you will need to check each month if you have reached the threshold. If your turnover exceeds the threshold you need to register within 21 days of reaching it.
You can register for GST when you first register your business or at a later date. It is a good idea to register for GST even if your turnover has not yet reached the threshold. The advantages of being registered include:
- Claiming GST credits for any GST you have paid on goods and services used in your business.
- Eliminating the risk of upsetting clients with an unexpected price rise; to maintain net profit margins, you will need to increase your prices by the GST percentage when your turnover reaches the threshold.
- You will not need to monitor your turnover each month to determine whether you are likely to reach or exceed the threshold.
The ATO has more information about registering for GST.
Pay as you go (PAYG) withholding
When you pay employees or contractors you may need to withhold tax from their pay to send to the ATO. PAYG withholding ensures employees and businesses can meet their end-of-year tax liabilities.
These can include payments you make to:
- employees, company directors and office holders
- businesses that do not quote their ABN
- individuals under labour hire arrangement
- contractors who have a voluntary agreement with you
- employees on termination of their employment.
If you operate your business as a sole trader or partnership and draw cash from the business, this is not a wage and you do not have to withhold tax from these drawings. You need to make provision for your income tax liability through PAYG instalments, or consider a separate savings account.
You can register for PAYG withholding when you register for an ABN or at a later date. Your PAYG registration must be in place before you withhold an amount from a payment.
The ATO has more information about registering for PAYG withholding.
Action to take
Types of tax
Businesses may have other tax obligations, including:
Payroll tax, administered by the Department of Finance, is a general purpose tax assessed on wages paid by employers in Western Australia.
For most small businesses a tax rate of 5.5 per cent applies when your wages bill exceeds $1,000,000 per year (or $92,000 per month).
The Department of Finance has more information on payroll tax.
Fringe benefit tax (FBT)
Employers pay FBT on some benefits provided to their staff, their staff’s families or other associates. The benefit may be in addition to, or part of, their salary or wages package.
Types of fringe benefits can include:
- allowing a staff member to use a work vehicle for personal use
- giving a staff member a low interest loan
- paying staff private health insurance costs
- providing entertainment such as food, drink or recreation to staff.
Capital gains tax (CGT)
A capital gain or loss is the difference between the amount you receive when you sell an asset compared to what the asset cost you. Not all assets attract CGT. You declare your capital gain in your annual tax return.
As a small business operator, you will most commonly make a capital gain or loss when you sell one of the assets used in your business, such as premises, or when you sell your business, for example good will. For small businesses that satisfy basic conditions there are a number of CGT tax concessions.
Land tax is assessed annually and is set by the State Government. It applies to land with a taxable value in excess of $300,000 that you own as at midnight on 30 June each year.
The Department of Finance has more information on land tax and how it is assessed.
Transfer duty is also a State Government tax and is payable on dutiable transactions including:
- transfer of business assets
- partnership interests.
The Department of Finance has more information on transfer duty.
Pay as you go (PAYG) instalments
PAYG instalments are paid to the ATO and go towards your expected end of year income tax liability.