Whether you are a start-up or an established small business, keeping proper records is very important not only for calculating your income tax and BAS payments but also for determining the financial health of your business.
Step 1: Gather all receipts
Organising your receipts can be painful but doing it now can save you time later on. All business owners are required to keep records for four years in either electronic or paper form. These include:
Sales records (invoices, vouchers, receipts, credit card statements and cash register tapes)
Purchase/expense records (invoices, receipts, cheque butts, credit card and bank statements)
Employee records such as wages and superannuation details, and PAYG Payment Summaries
End of year tax records (motor vehicle expenses, debtors and creditors list, stocktake sheets and asset purchases).
Forget your shoeboxes of receipts and invoices. If you have to flick through countless documents for details of individual asset purchases or breakdowns of repair and car expenses for your accountant, you’re not doing it right. Imagine how much easier it would be if you use accounting software. All you need are just a few clicks to send the information across to your accountant for EOFY.
Step 2: Organise your records
- Now, you need to organise your documents that you need to prepare an EOFY tax report:
- Listing of Accounts Receivables (debtors or people that owe you money) as at 30 June
- Listing of Accounts Payables (creditors or people that you owe money to) as at 30 June
- Review your Accounts Receivable (debtors) and write off invoices which you deem cannot be recovered.
- Employees PAYG Payment Summaries
- A stocktake on 30 June
- Employees PAYG Payment Summaries
- Employees Superannuation records
Step 3: Review and reconcile
- When reviewing your financial records, there are a few basic things you should undertake.
- Prepare bank reconciliation for each bank account. This will compare the transactions in your records against your bank statement.
- Missing transactions can be added to ensure accuracy
- Duplicate transactions are easier to find and correct
- Unpresented amounts are identified and will provide the business with a true bank account balance
You can make changes to earlier transactions. However, keep your accountant in the loop. They may have an impact on your next BAS or require your old BAS to be amended.
Match your receipts against your bank transactions. If there are missing receipts, you should acquire copies from your suppliers.
Unless your business has very few transactions each month, then it pays to use accounting software to prepare your BAS accurately and provide the right information to your accountant at tax time. This will reduce the time you spend on bookkeeping and allow you to focus more time on running your business.
Step 4: Calculate income and expenses
Technically, you could do this while you’re doing your return, but it saves you time if you do it now. You need to go through each income and expense category and calculate a sub-total. If you are registered for GST and prepare a BAS, then you need to exclude the GST to determine the GST exclusive amounts required for tax return reporting. You’re now ready to see your accountant about preparing your income tax return, should you have an accountant review your books.
It’s important to note that the income and expenses on your tax return are calculated on a GST-exclusive basis unless of course your turnover is less than $75,000 per annum and you are not registered for GST. If you have accounting software, it will automatically exclude the GST and produce the information required for your tax return.
Step 5: Avoid doing this manually for next EOFY
If you’re using accounting software, you would be saving time by entering transactions on a weekly basis to keep the files up-to-date and reconciling the amounts entered to the bank statements at least monthly. Your accountant will need to make end of year adjustments for items such as depreciation, to reduce any private expenses claimed as business and for capital expenses posted to repairs (for example, purchase of equipment). They can do this quite easily by syncing in with your accounting software.
Benefits of cloud accounting
Access anywhere, any time - With cloud accounting solutions, you don’t have to be tied to the one desktop computer (out the back of the store). For example, MYOB Essentials, our web browser-based accounting solution, you can log in anywhere you’ve got a web browser. Or with MYOB AccountRight, you can get the power of the desktop and convenience of the web; install MYOB AccountRight on any desktop and sync up with your data from the internet.
Centralised data - You will only ever have one data file. Unless your software automatically goes into a read-only mode when you do a backup or copy the file, it’s fairly common for business owners to have more than one data file.
Easy, secure sharing - You can share the data with as many others as you like, whether it’s your accountant, your bookkeeper, your business coach or even your bank manager. No longer is it necessary to email selected reports or the data file or — even less convenient — backing up the file to a USB stick and delivering or sending it to whoever needs the data.
Managed backups - You’ll never have to back up your data file again and the time you’ll save not messing around with the actual backups.
Work online and offline - With a hybrid such as MYOB AccountRight, you can have the best of both worlds. When you are connected to the internet, you can enjoy all the benefits of online accounting such as centralised data, sharing with accountants, and MYOB managed backups. But you can also work offline, and your data will simply sync automatically the next time you connect to the internet.
Steps to get your Company on Track
1. Open a bank account
After you’ve legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make life easier come tax time. Note that partnerships and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s definitely recommended.
Start by opening up a business checking account, and then any savings accounts that will help you organise funds and plan for taxes. For instance, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. Next, you’ll need to consider a business credit card to start building business credit. Corporations and LLCs are required to use a separate credit card to avoid commingling personal and business assets.
In order to open a business bank account, you’re required to have a business name and registered with your state or province.
2. Track your expenses
The foundation of solid business record keeping is learning to track your expenses effectively. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return.
There are five types of receipts that you should pay extra attention to:
- Meals and Entertainment: Conducting a business meeting in a cafe or restaurant is a great option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
- Out of town business travel: The IRS and CRA are wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
- Vehicle-related expenses: Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle related expenses.
- Receipts for gifts: For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment, rather than a gift. Note these details on the receipt.
- Home office receipts: Similar to the vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home-related expenses.
3. Develop a bookkeeping system
Bookkeeping is the day-to-day process of recording transactions, categorising them, and reconciling bank statements.
Accounting is a high-level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements. As a new business owner, you’ll need to determine which bookkeeping method to use:
- You can choose to go the DIY route and use software like Quickbooks or Wave. Alternatively, you could use a simple Excel spreadsheet.
- You have the option of using an outsourced or part-time bookkeeper that’s either local or cloud-based.
- When your business is big enough, you can opt to hire an in-house bookkeeper and/or accountant.
Let’s take a look at the difference between the two methods.
- Cash Method: Revenues and expenses are recognised at the time they are received or paid.
- Accrual Method: Revenues and expenses are recognised when the transaction occurs (even if the cash isn’t in or out of the bank yet) and requires tracking receivables and payables.
4. Set up a payroll system
As a new online store owner, you’ll likely be a one-person show. However, maybe you’ll hire a part-time employee to help you out, or a freelancer to design your logo. Right away, you need to establish whether that individual is an employee or an independent contractor. For employees, you’ll need to decide on a payroll schedule and ensure that you’re withholding the correct taxes; there are lots of services that can help with this. For independent contractors, be sure to track how much you’re paying each person.
5. Investigate import tax
Depending on your business model, you may be planning to purchase and import goods from other countries to sell in your store. When importing products, you’ll likely be subject to taxes and duties and are fees that your country imposes on incoming goods.
7. Establish sales tax procedures
The world of e-commerce has shaken up sales tax regulations and they are admittedly a bit confusing due to location issues. When a customer walks into a brick and mortar retail shop, they pay the sales tax of whatever state or province they make the purchase in, no matter if they live in that city, or they’re visiting from across the world. However, when you sell online, you’re often selling to customers who live in different states/provinces, and even countries.
8. Determine your tax obligations
Tax obligations vary depending on the legal structure of the business. If you’re self-employed (sole proprietorship, LLC, partnership), you’ll claim business income on your personal tax return. Corporations, on the other hand, are separate tax entities and are taxed independently from owners. Your income from the corporation is taxed as an employee.
9. Calculate gross margins
Improving gross business margin is the first step towards earning more income overall. In order to calculate the gross margin, you need to know the costs incurred to produce your product.
- Cost of Goods Sold (COGS): These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labour costs.
- Gross margin: This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.
10. Periodically re-evaluate your methods
When you first start out, you may opt to use a simple spreadsheet to manage your books but as you grow you’ll want to consider more advanced methods like Quick books or Bench. As you keep growing, it’s good to continually reassess the amount of time you’re spending on your books, and how much that time is costing your business.
The business activity statement (BAS) is a form submitted to the Australian Taxation Office (ATO) by registered business entities to report their tax obligations, including GST, pay as you go withholding (PAYGW), pay as you go instalments (PAYGI), fringe benefits tax (FBT), wine equalisation tax (WET) and luxury car tax (LCT). PAYGW is sometimes known as "Income Tax Withholding (ITW)," PAYGI is sometimes known as "Income Tax Instalments (ITI)".
The ATO forwards to each registered business before the end of each reporting period a BAS tailor-made for the business entity. The BAS may be delivered to the business as a paper form, electronically or via the business’s registered tax agent. Parts of the BAS may be pre-filled.
Related to the BAS is the Instalment Activity Statement (IAS), which is used by taxpayers who are not registered for the GST but have other tax obligations. An IAS is also used by entities that prepare a quarterly BAS but are required to remit their PAYG withholding tax on a monthly basis.
The business activity statement reporting system was introduced in 2000 as a part of a major tax reform, which also included the introduction of the goods and services tax (GST). The various forms and reporting methods have changed considerably since the initial introduction of the BAS.
As a business owner, you have certain obligations to the ATO in regard to reporting business. At Budget Bookkeeper & Accountants, we can help you with:
- Registering for GST
- Working out sales which are taxable, GST free or input taxed
- Including GST in the price of taxable sales
- Obtaining tax invoices for business purchases that have GST included in the price
- Calculating any adjustments
- Accounting for GST on cash or non-cash basis
- Reporting sales and purchases by lodging activity statements and advise on the required GST payments
Pay-as-you-go tax (PAYG) withholding The Australian Tax Office (ATO) administers Introduced in 1999, it merged 11 previous payment and reporting systems, one of which was a "PAYE" system for employee income, from which the name "PAYG" distinguishes. Employers must calculate the amount of income tax to withhold based on ATO tables, based on employee declarations. These arrangements cover payments from employment as well as under the Prescribed Payments system and the Reportable Payments system. The PAYG system involves regular payments made by employers and other payers, for example, superannuation funds. It is used to collect by instalments income tax, repayments, Medicare and other payments. PAYG amounts to be withheld determined based on the Australian Taxation Office (ATO) PAYG schedules. Discrepancies and deduction amounts are declared in the annual income tax return and will be part of the refund that follows after annual assessment or reduce the tax debt that may be payable after assessment.
Each employee who receives PAYG-type payments during a financial year would receive a PAYG payment summary from their employer at the end of the financial year - commonly known as the Group Certificate. The PAYG payment summary will include:
- the employee's details including the Tax File Number (TFN)
- the gross income earned by the employee from that payer
- the total PAYG amount withheld by the payer
- the payer's Australian Business Number (ABN) or withholding payer number (WPN).
The information on the PAYG payment summary is needed to enable the employee to complete his or her income tax return. The payer must send to the ATO a copy of the PAYG payment summaries as well as an annual PAYG summary. This may be sent to the ATO electronically using Standard Business Reporting enabled software, or it may be sent as a hard copy by mail. The total of the wages paid reported on the PAYG summary and the total amount withheld must agree with the totals as reported by the payer to the ATO on the Business Activity Statements (BASs) for the year. The ATO will use the information on the PAYG payment summary to match with the employee, using the employee's TFN.
Fringe benefits tax (FBT) is tax employers pay on certain benefits you provide to your employees, including your employees' family or other associates. The benefits may be in addition to, or part of, salary or wages packages. FBT is separate from income tax.
If you were required to pay FBT of $3,000 or more in the past financial year, then you need to lodge your BAS and pay quarterly. FBT is separate from income tax.
To pay the instalment amount, complete the following labels:
F1 – ATO instalment amount
If you pay FBT quarterly, a pre-determined instalment will be shown at F1. Calculate the amount at F1 based on the FBT payable on your most recent FBT assessment. If you think that using the amount displayed at F1 will result in you paying more (or less) than your expected FBT liability for the year, you can vary it. If you are not varying your instalment amount, copy the amount at F1 to 6A in the Summary section of your business activity statement (BAS).
6A - FBT instalment
If you're using the FBT instalment amount displayed at F1, copy this amount to 6A. If you've varied your FBT instalment amount for the quarter, copy the FBT instalment amount you wrote at F3 to 6A.
If you want to vary your FBT instalment, also use:
F2, F3, F4 – Varying your instalment amount
If you want to vary the amount displayed at F1, you'll need to complete labels F2, F3 and F4. If you vary your instalment amount and your total instalments for the year – or the estimates that you base them on – are less than 90% of your actual FBT liability for the year, you may incur a penalty.
F2 – Estimated FBT for the year
Include at F2 your estimate of your total FBT liability for the FBT year ending 31 March.
F3 – Varied amount for the quarter
Work out the amount of your varied FBT instalment for the quarter using the following formula:
(F2 amount x relevant percentage) minus
(previous instalment liabilities less any previous credits claimed)
The relevant percentage depends on the FBT quarter in which you are varying the instalment amount:
| Quarter ending | Applicable percentage |
|---|---|
| 30 June | 25% |
| 30 September | 50% |
| 31 December | 75% |
| 31 March | 100% |
If the result is a positive amount, enter it at F3. If it's a negative amount or zero, enter '0' at F3.
If it's a negative amount, you may want to claim credit at 6B in the 'summary' section. Don't show a minus sign at 6B.
F4 - Reason code for variation
If you've varied your FBT instalment amount, you need to tell us why. Choose the reason from the table below and enter the corresponding code at F4.
| Reason | Code |
|---|---|
| Current business structure not continuing | 22 |
| Change in fringe benefits for employees | 30 |
| Change in employees with fringe benefits | 31 |
| Fringe benefits rebate now claimed | 32 |
6B - Credit from FBT instalment variation
If you vary your estimated FBT for the year to an amount lower than the FBT you had to pay last year, you may get an FBT instalment credit. You should take this credit into account when working out any amount payable. The credit is only available where the calculation of the F3 amount gives a negative amount.
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally claim GST credits for items provided as fringe benefits.
| Fringe benefit | Not a fringe benefit |
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Luxury car tax (LCT)
Luxury car tax (LCT) is a 33% tax on cars with value (including GST) above our set threshold. This tax only applies to the portion of the car’s value that is above the threshold, not the total value of the car. LCT is paid by businesses that sell or import luxury cars (dealers), and also by individuals who import luxury cars.
Reporting and paying GST instalments
If you report and pay GST using Option 3: Pay GST instalment amount and report annually, don't complete the LCT section of your BAS. Your LCT will be included in your GST instalment amount. However, you will still need to report LCT payable (1E) and LCT refundable (1F) when lodging your Annual GST Return. This is due at the same time as your income tax return.
Reporting and paying GST annually
If you report and pay GST annually you don't have to report LCT on a monthly or quarterly BAS. You'll only need to report LCT on your Annual GST Return.
Who needs to pay LCT and who can defer paying it?
- If you sell or import cars valued at more than the threshold you will need to pay LCT.
- In some circumstances, you may be able to defer paying LCT by quoting your ABN.
- You can do this if you plan to use the car only for one of the following purposes:
- to hold it for trading stock (not including holding it for hire or lease)
- to carry out research and development for the car's manufacturer
- to export it GST-free.
- If you stop using a car for a quotable purpose, for example, if you hold a car as trading stock and start using it for private purposes, or if it becomes a capital asset of your business you must pay the LCT.
| LCT thresholds in the last five years | ||
| Financial year | Fuel-efficient vehicles | Other vehicles |
| 2018–19 | $75,526 | $66,331 |
| 2017–18 | $75,526 | $65,094 |
| 2016–17 | $75,526 | $64,132 |
| 2015–16 | $75,375 | $63,184 |
| 2014–15 | $75,375 | $61,884 |
Wine equalisation tax (WET)
If your business makes wine, import wine into Australia or sell it by wholesale, you'll generally have to account for wine equalisation tax (WET). WET is a tax of 29% of the wholesale value of wine. It is only payable if you are registered or required to be registered for GST.
Report and pay GST instalments
If you report and pay GST using Option 3:
Pay GST instalment amount and report annually, don't complete the WET section of your BAS. Your WET will be included in your GST instalment amount. However, you'll still need to report WET payable (1C) and WET refundable (1D) when lodging your Annual GST Return. This is due at the same time as your income tax return.
Report and pay GST annually
If you report and pay GST annually you are not required to report WET on a monthly or quarterly BAS, however you must report WET on your Annual GST Return.
WET - how to complete your activity statement labels
Wine manufacturers, wholesalers and importers need to complete the WET section of the business activity statement (BAS). If you have no WET to report, enter ‘0’ at 1C and 1D.
To report on WET, you need to complete the following labels:
1C – WET payable
Enter at “1C” all WET that you're liable to pay in the current reporting period which, includes all your assessable dealings, the most common being wholesale sales and retail sales.
1D – WET refundable
Include at 1D the amount of WET refundable. Calculate the WET you are entitled to as a credit in the current reporting period. You can claim a WET credit if you’ve overpaid WET, are entitled to a producer rebate for certain exports or imports, or where you've written off bad debt.
Fuel tax credits
As a business, fuel tax credits provide you with a credit for the fuel tax (excise or customs duty) that are included in the price of fuel used in:
- machinery
- plant
- equipment
- heavy vehicles
- light vehicles travelling off public roads or on private roads.
- The credit amount depends on:
- when you acquire the fuel
- what fuel you use
- the activity you use it in.
The amount depends on when you acquire the fuel, what fuel you use and the activity you use it in. Fuel tax credits rates also change regularly so it's important to check the rates each time you do your business activity statement (BAS). Some fuels and activities are not eligible including fuel you use in light vehicles of 4.5 tonnes gross vehicle mass (GVM) or less, travelling on public roads.
Rates – business
Fuel tax credit rates change regularly. They are indexed twice a year, in February and August, in line with the consumer price index (CPI). Rates may also change in July for fuel used in a heavy vehicle for travelling on public roads. This is due to changes to the road user charge, which is reviewed annually. In July, rates also change due to an annual increase in excise duty rates on biofuels.
Stamp Duty
Stamp duty is a tax on written documents ('instruments') and on certain transactions. It is imposed by state and territory governments. It can vary depending on the state or territory and may be called stamp duty, transfer duty or general duty. Taxable transactions include:
- motor vehicle registration and transfers
- insurance policies
- leases and mortgages
- hire purchase agreements
- transfers of property (such as businesses, real estate or certain shares).
The rate of stamp duty varies according to the type and value of the transaction involved.
Payroll Tax
Payroll Tax is a state tax on the wages paid by employers. It's calculated on the amount of wages you pay per month and collected in each state or territory that your employees are located in. However, not all businesses will have a tax obligation. You are only liable for payroll tax if your total Australian wages exceed the tax-free threshold that applies in your state or territory — tax-free thresholds vary between states and territories.
Tax returns cover the financial year from 1st July to 30th June, but Company tax return due lodgment dates depend on the circumstances of the company. Regardless of general guidelines, the tax office can otherwise request lodgment by a specified date. Lodgement dates are broadly categorised according to risk (prior lodgement record) and revenue (tax payable and size) factors. The following tax agent program applies to 30 June balancing companies:
- small companies are generally due by 28 February (lodgment and payment)
- companies with prior-year return outstanding or prosecutions are required by 31 October (payment by 1 December)
- large or medium and previous year low-taxed companies, consolidated group companies are required variously from December through March
- various non-taxable entities may have until 15 May as their final lodgment date (generally extendible without penalty to 5 June, beyond which restricted dates apply in the following year).
Business needs to lodge tax return by the 31 October. Most registered agents have special lodgment schedules and can lodge returns for clients later than the 31 October deadline. If you are using a registered agent, ensure you contact them before 31 October. Even if the deadline has passed, it is important to lodge as soon as you can.
When a due date falls on a Saturday, Sunday or public holiday, you can lodge or pay on the next business day. The payment due dates for a tax return are determined by client type, the lodgment due date and when the return is lodged.
When lodging your return to the Australian Taxation Office (ATO), you should be aware of the different rules that apply to your business structure.
Sole trader: Lodge an individual tax return. Include all your business income on your individual tax return using a separate business schedule. You don’t need to lodge a separate tax return for your business.
Partnership: A partnership has its own tax file number but doesn't pay income tax on the profit it earns. Each partner reports their share of the partnership income in their own tax return. A partnership must also lodge a separate partnership return yearly with the ATO under the business tax file number (TFN).
Company: A company is a separate legal entity and must lodge its own company tax return and pay tax on its income. If you’re a director, you’ll still need to lodge your own personal return as an individual.
Trust: A trust has its own TFN and must lodge a trust income tax return.
If you are a sole trader, partnership, trust, or company, you have a choice in how to lodge your tax return. You can lodge:
through a registered tax agent (contact them before 31 October if you haven't lodged with them before and check whether they are registered with the Tax Practitioners Board)
- online with myTax if you're a sole trader
- using standard business reporting (SBR) enabled software if you're a company, trust or partnership
- by paper
Lodging with my Tax
MyTax is the quick, easy, safe and secure way to lodge your tax return online. It's web-based, so you don't need to download anything. You can lodge on a range of devices – computer, smartphone or tablet – just make sure to lodge by the 31 October deadline. To lodge online you need a myGov account linked to the ATO. MyTax is available to all individuals completing their own return (including sole traders).
MyTax is accessed through myGov. Clicking this link will take you away from ato.gov.au. Once logged in, follow these menu options: Home > Individuals > Loggin your tax return > Lodge online
Benefits of lodging with myTax
- employers’ information, banks, government agencies, health funds and other third parties is pre-filled by mid-August
- information is protected by the system and controls
- available 24/7 for the convenience of business
- Quick refund, generally within two weeks.
- Can upload “myDeductions” data to a pre-fill tax return.
- It's available for all individuals who want to lodge their own tax return, including sole traders.
- Tax return lodgement acknowledge receipt
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