Small Business Tax Debt

Business Structures

Business structures are one of the primary factors in determining how much your business is liable to pay. A business structure defines the ownership of the business and dictates its legal liabilities. The four types of business structures in Australia are:

Sole Traders

A sole trader is an individual that owns and runs the business. This is one of the simplest and most cost-effective of the four business structures.

Partnership

A partnership is two or more people running a business, sharing both the income and losses.

Company

A company is a seperate legal entity from both its shareholders and managing directors. A company has its own tax and superannuation obligations, creating limited liability for its directors. In addition to this, all company assets and income are owned by the company, not its shareholders, however profits can be distributed via dividends that may have attached franking credits.

Trust

Trusts are a business structure whereby a grantor imposes an obligation on the trustee to manage and control assets for the beneficiaries. Trusts can be formed by individuals or businesses for financial planning, asset protection, investing and estate planning.

In Australia, businesses must be registered to pay tax with an Australian Business Number (ABN). All business types are required to lodge their respective income tax return annually. In addition to this, businesses registered for the Goods and Services Tax (GST) are required to lodge Business Activity Statements (BAS).

Small Business Tax Gap

The small business tax gap is a system used by the ATO to retrospectively determine the difference between the amount of tax collected and the amount that would have been collected if all businesses were fully compliant with tax law. The most recent tax estimate for the 2019-2020 financial year indicated an approximate gap of 7% in unpaid tax. This system allows the ATO to improve their compliance enforcement methods.

Tax gaps may be the result of a small business’s misunderstanding of their obligations or a conscious choice. However, regardless of the cause, unpaid tax can lead to serious recovery action being taken by the Australian Tax Office. If you are concerned that your business has unpaid tax, contact Tax Negotiators today. We can assess your financials to determine if your tax obligations have been fulfilled, helping you to avoid penalties, interest and recovery action.

Tax Returns

Maintaining clear and concise records throughout the financial year ensures your small business tax return is accurate. All records and receipts used to complete your tax return must be retained for five years. It is also highly recommended to employ a tax agent to ensure your tax affairs are correctly managed. Seek professional advice from our friendly team at Tax Negotiators. We can take care of everything at tax time so you can focus on the demands of your small business.

The supporting documents required in your tax return also depend on your business structure however primarily include evidence of taxable income such as:

• salaries
• wages
• government payments
• interest and dividends
• managed funds

and tax-deductible expenses, such as:

• motor-vehicle expenses
• clothing and dry-cleaning
• work from home expenses
• tools, equipment and assets
• worker’s salaries, wages and superannuation contributions
• depreciating assets and capital expenses
• carbon sink forest expenses
• expenses related to overnight business travel
• employee travel expenses
• donations, gifts and other tax-deductible contributions

Simpler Trading Stock Rules

By using the simpler trading stock rules, small businesses can simply their end of financial year stock take. Under the tax act, eligible businesses are those with an aggregated annual turnover of below $50 million. This rule allows small business owners to estimate the value of their stock. If at the end of the income year they have the same stock value, or the difference in value is $5,000 or less, they are not required to conduct a formal stocktake or account for the difference in value in their assessable income.

Our friendly team at Tax Negotiators are unrivalled in our understanding of the Australian tax system and are experienced in assisting small business owners lodge their annual tax return and business activity statement. In addition to this, we are the industry leaders in tax debt negotiation. We are also able to assist with overdue tax and BAS returns and can negotiate the associated fees and interest costs to ease your financial burden.

Small Business Tax Offset

The small business income tax offset is a method for unincorporated businesses to reduce their tax payable by up to $1,000. The offset is calculation is base on the proportion of your small business’s tax payable. Eligibility requirements include:

• you must operate as a sole trader, or have a share of net income from a small business partnership or trust
• the small business must not have an aggregated turnover exceeding $5 million.

Understanding how much tax your small business is required to pay is critical to avoiding the accumulation of tax debt, fees and charges. Moreover, unattended tax debt can escalate into harsh recovery tactics by the ATO including garnishee orders, Director Penalty Notices (DPN) and statutory demands; all of which can impose personal liability or wind-up a business.

At Tax Negotiators we have a thorough understanding of company tax rates and tax free thresholds. We can provide expert advice, tax tips and help your business to claim all eligible deductions.

The small business entity turnover threshold is the income limit that the ATO uses to determine eligibility for tax concessions. Most concessions carry a turnover threshold of $10 million, however as part of the 2020-2021 budget, the government announced and increase in the threshold to $50 million for certain concessions. Business of all structures may be considered small business entities for tax purposes and may be eligible to claim concessions.

Small Business Tax Concessions

Simplified Depreciation Rules

Simplified depreciation rules include the instant asset write off concession, which allows businesses to immediately deduct the business portion of eligible assets within the threshold of $150,000. The claim must be made in the year the asset was first used or first installed ready for use. In addition to this, simplified depreciation rules include a general small business pool which allows small businesses to claim depreciation on plant and equipment assets at an accelerated rate.

Capital Gains Tax (CGT) Concessions

The CGT concession allows small businesses to reduce, defer or disregard a portion or the entirety of a capital gain from an active asset. The four capital gains concessions include:

• Small business 15 year exemption
• Small business 50% active asset reduction
• Small business retirement exemption
• Small business rollover

Goods and Services Tax (GST) and Excise Concessions

Goods and services tax concessions aim to provide flexibility to small businesses when lodging their tax return. The GST-related concessions available include accounting for GST on a cash basis, making GST payments by instalments, annual apportionment of GST input tax credits and the excise concession. Excise concessions allow small businesses to delay settlement (lodging and paying) on their excise duty. This defers the reporting cycle from weekly to monthly.

PAYG Instalment Concessions

Pay as you go (PAYG) instalments are available to small businesses to plan ahead for their income tax return. The instalment amounts are calculated by the ATO based on your business’s most recent income return, while catering for potential growth.

Fringe Benefits Tax (FBT) Concessions

Fringe benefits tax is payable by employers on any benefits they give to their employees. Fringe benefits usually include cars, parking and other private deductions. Small businesses with an aggregated turnover of below $10 million are eligible to two FBT concessions:

• The FBT car parking concession which provides exemption from paying tax in non-commercial car parks; and
• The FBT work-related devices exemption, releasing businesses from paying FBT on devices used primarily for business including mobile phones, laptops and tablets.

Superannuation Contribution Concession

The superannuation clearing house concession allows small businesses to pay all of their employee’s super guarantees in a single monthly payment.

Tax concessions are a complicated field, particularly as small businesses are usually eligible for multiple tax concessions. Therefore, it is highly advisable to seek professional advise and employ a tax agent. This ensures that your company’s includes each tax deduction for which it is eligible.

The applicable business taxes vary based on the business’s structure, income and number of employees. There are a range of taxes for which your small business may be liable, including:

Income Tax

All business structures are required to pay income tax. The business’s taxable income or loss must be reported on their annual tax return. For sole traders and partnerships, this information is to be provided on their individual return, while companies and trusts use a tax return specific to their business structure. The tax rates for each business structure vary:

Sole Trader and Partnerships

Sole traders and partners are entitled to a tax free threshold of $18,200. Thereafter, the tax rates are:

$18,201 – $45,000: 19 cents for each $1 over $18,200
$45,001 – $120,000: $5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000: $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over: $51,667 plus 45 cents for each $1 over $180,000

Companies

Companies are not subject to a tax free threshold; instead, every dollar earned on a company’s tax return is assessable income. Companies under the classification of a ‘base rate entity’ are liable for a tax rate of 25%. To be considered a base rate entity, the company must:

• Have an aggregated turnover below the threshold of $50 million for the income year
• not earn a passive income that exceeds 80% of the company’s assessable income

Companies ineligible for the base rate entity must pay a tax rate of 30%.

Capital Gains Tax (CGT)

Capital gains tax is the tax payable on profits from the sale of assets such as property, vehicles or equipment. Capital losses and gains are reported through lodging tax returns and form part of the income tax.

Goods and Services Tax (GST)

The goods and services tax is applied at a rate of 10% to the majority of products and services in Australia. Only businesses with a gross annual income of $75,000 or more must register and charge GST. This is then collected by the business and paid to the ATO, less any GST credits, at the end of each Business Activity Statement reporting period. GST credits, otherwise known as input tax credits, can be claimed for any GST-inclusive business expenses.

Payroll Tax

Not all businesses are liable for payroll tax and it is a state or territory tax. This tax is levied on the wages paid by an employer to their employees. The payroll tax rate also varies between Australian states and territories however currently, the tax free threshold in NSW is $1.2 million, so small business generally do not have to pay payroll tax.

Fringe Benefits Tax (FBT)

Fringe benefits are a form of payment by an employer to an employee, however not in the form of a salary or wage. Instead fringe benefits may include:

• the provision of a business car for personal use
• paying for an employee’s gym membership
• entertainment provisions such as free tickets to shows or concerts
• reimbursing an employee’s personal expense

FBT is separate to income tax and businesses are required to self-assess their FBT liability.

The ATO understands that businesses of all sizes experience cash flow issues and periods of financial hardship. By engaging with the ATO early, there is support available to help deal with overdue tax debt, primarily including payment plans or payment deferral.

If you do not address your tax debt, you can expect enforcement action by the ATO. This may include interest charges, fees, fines, garnishee notices, director penalty notices or statutory demands. These recovery methods must be taken seriously as they can hold small business owners personally liable for unpaid debt or even wind-up their business.

If you fail to make payment on time, the ATO may apply the General Interest Charge (GIC). This interest charge compounds daily, and so can grow quickly. Therefore, it is essential to obtain professional advice to avoid the GIC escalating to an unmanageable sum.

Fortunately, Tax Negotiators specialise in managing unpaid tax and BAS debt. We can negotiate payment plans that work for your budget and potentially reduce any attached interest or charges. If you are struggling to pay due to extenuating circumstances, we will work to have the debt released wherever possible. The best part is, Tax Negotiators can handle everything on your behalf, making the process simple and efficient.

If you have outstanding tax debt, acting promptly is the best course of action. Contact us today by calling 1300 277 148 or emailing help@taxnegotiators.net.au.

Negotiating Tax Debt with ATO

An ATO payment plan is an effective and manageable way to get on top of personal and business tax debt. Payment plans allow instalments to be paid over a fixed period of time, be it weekly, fortnightly or monthly, until the debt is cleared (as opposed to a lump-sum payment). Once a plan has been negotiated and agreed upon, it becomes a formal arrangement with the ATO.

Payment plans can be entered into by sole traders, individuals, businesses and registered tax agents on behalf of their clients. For tax debts that are $100,000 or less, payment plans can be requested online through a myGov account. To create a plan for debts in excess of $100,000, the ATO must be phoned.

Benefits of Payment Plans

Payment plans are an excellent way to recover from tax debt as they stabilise your business’s cash flow. This supports business growth and allows businesses to continue meeting other financial obligations. In addition to this, they can significantly ease the financial and emotional pressure of an outstanding debt.

Crucially, payment plans can also avoid further debt or more serious consequences. If a debt is not being addressed, discussed or disputed with the ATO, they may start to take more aggressive action against you in the way of garnishee notices, director penalty notices (DPN) or statutory demands.

How to Secure a Payment Plan

To get started, the best first step is to contact our friendly team at Tax Negotiators. Not only can we help to form a payment plan, we can assist in debt negotiation, too. Taking action as soon as possible reduces being at risk of more serious recovery strategies by the ATO and leads to faster financial recovery. To help your case with the ATO, it is strongly recommended to be open, honest and show a proactive approach to resolving your debt.

We offer a free initial consultation where you can obtain professional advice and confirm that we are the right team to provide you with a plan to regain control of your small business. To book in your appointment, contact us today by calling 1300 277 148 or emailing help@taxnegotiators.net.au.

Small business tax is a convoluted field, however not one that businesses can afford to get wrong. Failing to pay your tax obligations can lead to serious financial consequences including hefty fees, interest and legal action by the ATO.

Due to the reverberations of the Coronavirus pandemic, more small businesses than ever are experiencing cash flow issues and financial hardship. To make matters worse, the ATO have resumed their debt collecting activities in an attempt to recoup the $55 billion they are owed. This means that enforcement action is increasing, and many small businesses are facing insolvency or liquidation as a direct result from failing to address their tax debt.

Fortunately, every business has the potential to avoid debt escalation and enforcement action. The sooner your debt is addressed, the better your chance at regaining control of your business. At Tax Negotiators, we are experts in negotiating outstanding debt from tax and business activity statements, interest, fees and charges; allowing Australians to save their businesses. We can simplify your obligations at tax time by ensuring you claim each tax deduction for which your business is eligible.

If you have outstanding tax debt, contact our friendly team today by calling 1300 277 148 or emailing help@taxnegotiators.net.au.