When it comes to taxes, there’s no shortage of confusion. Whether you’re a small business owner, a freelance worker, or an employee, understanding the federal tax system in Australia can be a complex and daunting task.
Fortunately, there are some basic principles that everyone should know. In this two-part series, we’ll break down the basics of taxes in Australia, so you can better navigate the complexities of being a taxpayer with a clearer and more confident approach.
After all, it’s crucial to understand how these taxes work because they can have a significant impact on your finances in more ways than one.
Part One: The Lowdown on Different Tax Calculations in Australia
There are a number of different tax calculations in Australia, each with its own rules and regulations. Here is a rundown of the most common types of taxes in Australia:
Income tax is one of the most common taxes in Australia and is levied on both individuals and businesses. The tax is calculated based on your taxable income, which is your total income minus any allowable deductions. The tax rate varies depending on your income bracket, and the amount of tax you pay also depends on whether you are an individual or a company.
Goods and Services Tax (GST)
The Goods and Services Tax (GST) is a value-added tax that is levied on most goods and services sold in Australia. The GST is currently set at 10 per cent, which means that for every $100 worth of goods or services sold, the government collects $10 in GST. The GST is imposed on both domestic and imported goods and services and is paid by the consumer at the point of sale.
The GST is a consumption tax, which means that it is ultimately paid by the consumer. However, businesses are required to collect and remit the GST on behalf of the government. This means that businesses must add the GST to the price of their goods and services, and then remit the GST collected to the government.
What are the Conditions Required to Register for GST?
If your business (and overseas retailers with Australian sales) has a turnover of more than $75,000;
Businesses that are registered for GST must charge GST on all of their sales, regardless of the amount. However, there is a threshold of $75,000 per year for businesses, which means that ventures that do not expect to exceed $75,000 in sales in a year are not required to register for GST.
If your not-for-profit organisation has a turnover of more than $150,000;
Meanwhile, not-for-profit organisations with a turnover of more than $150,000 must also register for GST.
If you provide limousine or taxi travel services;
Similarly, rideshare drivers in Australia are considered to be businesses, and as such, they are required to register for GST and are also required to charge GST on all of their fares, and remit the GST collected to the government. There is no threshold for rideshare drivers. They must pay GST from the first $ earned.
If you intend to claim fuel tax credits;
Claiming for tax credits also requires a GST registration, regardless of the turnover.
If your business has a turnover that exceeds the GST registration threshold, you must register for GST within 21 days. This is a strict deadline, and failure to comply can result in a fine. So whether you’re a full-fledged business or a self-made entrepreneur, so long as you meet these conditions, it’s vital to address your GST registration or risk facing costly consequences.
The Bottom Line: Understanding Income Tax and GST in Australia for Better Compliance Now and Beyond
It’s no secret that tax can be confusing. But when you’re running a business, it’s essential to have a good understanding of the different types of taxes that may apply to you, and how they work. With that in mind, income tax and GST are two of the most important taxes that you need to be aware of, as failure to stay compliant can lead to significant penalties.
If you are unsure about your obligations, it’s a good idea to seek professional advice to ensure that you are meeting your obligations. Alternatively, you can also explore the best ATO tax calculator apps that make tax solutions a speedier and easier experience for anyone.
At TaxLeopard, we have developed an easy-to-use Australian tax app and tax solutions app to help you lodge your taxes efficiently and accurately.