Have you ever thought of hiring a professional accountant for your small business in Australia? If not, you may have to be, at least, to avoid various tax issues that arise from failing to meet proper tax requirements. As multiple agencies take the responsibility of administering different taxes for small businesses, and each of them has its own rules and payment methods, it is not very uncommon for these businesses to face tax problems.
Most business owners resorted to MTD for VAT for immediate tax calculation in solving these tax problems.
In this write-up, we discuss several business tax issues you may face while running a business and how you can prevent them.
Business ownership and tax considerations
The taxes that you have to file and pay will depend on the business classification. Thus, the tax rate does not always vary with the amount of money you earn through business. If you have a sole trader business, you have to pay the tax on personal income. Here, the earned money amount determines the tax rate, which may be as low as 0%. For a company structure, the rate of tax will be 30%.
If your business sells goods or provides consumable services, you have to pay the Goods and Services Tax (GST). Goods and Services Tax is a broad-based consumption tax issued on most services and goods sold in Australia. Though most business owners and retailers add this tax to the price, you have to pay the tax to the relevant authority.
You can get a large tax bill if you have already spent it. In Australia, every business needs to register with the ATO for the GST. But, if your business has paid for business supplies and the payments, including the GST, you can claim an equivalent input tax credit.
Other taxes Australian small businesses have to pay include payroll tax, fringe benefits tax, and land tax. These taxes must also be paid to the appropriate authority.
Underpayment Of Taxes And Poor Record-Keeping
Another two common business tax issues that small businesses experience include tax underpayment and not maintaining proper records. The common situations that arise regarding underpayment and improper record-keeping include the following.
Situation 1
Sometimes, guests are collected from the customers, but business owners do not timely pay it to the government. In that case, you will still need to lodge the Business Account Statement. Otherwise, the Australian Taxation Office will charge a penalty. In case of a GST non-payment, the ATO generally recommends setting up a structured payment plan. They will also use a tax debt and hold specific people liable for sales. If the debt is under $100000, the payment plan can be set up over a phone call or online.
Situation 2
Owners of small businesses often underpay personal income tax. The reason behind it is that they are driven by a misconception of estimated quarterly tax being optional. As an earning person, you have to pay the estimated taxes, and failure to do it in time will result in higher interest on the unpaid amount and heavy penalties.
Situation 3
If you do not pay the estimated tax, it can also slow the growth of your business.
Situation 4
If the business financial records are not kept properly, problems can arise when you file taxes, and auditing work will be done. Say, if you fail to maintain proper receipts, you cannot claim your tax deductions.
Most underpayments are unintentional where the owners cannot understand the complex nature of the tax code. But, a few of them can be done intentionally for unlawful gains.
Read More: What changes do you need to make in your accounting practices?
Misclassification Of The Business And Related Issues
Having a small business in Australia means you have to pay appropriate taxes on time. Which tax and how much you have to pay will depend on the type of small business structure. Let us explain it with two different small business structures in Australia – sole trader and company.
For a sole trader, you have to pay your taxes at an individual income rate, while for a company, the taxes have to be paid at full company tax rates. Different tax rates are applicable for various companies, which are base rate entities. However, you have to keep updated about the changes to these rates by visiting the official website of the Australian Taxation Office.
Another tax is Capital Gains Tax or CGT. A capital gain is defined as the difference in the money between the buying price and the selling price of a business asset. If the capital gain is made from selling an asset that your sole trader business has owned for at least one year, the CGT can be reduced through either the discount method or indexation method. But, for a company, the discount method will not apply.
Another of those related business tax issues occurs when you buy a stock of goods or a business, you may have to be responsible for the penalties, interest, and taxes that the previous owner did not pay. This situation is known as successor liability and may cost you unexpectedly.
Employee Misclassification
You have to be very careful about classifying your employees. For instance, if you consider an independent contractor your employee, you will have to pay unnecessary income taxes and payroll taxes. But, if you do the opposite, i.e., misclassifying your employee as an independent contractor, the consequence will be much more serious. The authorities will find you guilty of tax fraud. This issue can be easily uncovered in an audit when they find tax remittances lower than expected.
How Can You Prevent Tax Problems?
One good thing about these discussed business tax issues is that they can be prevented without much difficulty. Hiring a professional business tax accountant can be an effective strategy. Only having tax calculation software will not do, and you will need to update it regularly following tax law changes. A professional bookkeeper will also serve you a lot of help. They can keep all the financial records, including all the receipts and tax files.
Final Words
Wondering where to look for a professional business or tax accountant? Well, for that, we recommend contacting the top-rated business taxing agency in the Australian city your business is based in.