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Business Tax Activity 3

RUNNING A BUSINESS:TAX OBLIGATIONS

Years 7-10

WHAT DO BUSINESS OWNERS NEED TO KNOW AND DO ABOUT TAX AND SUPER?

FIND OUT MORE ABOUT HOW TO SET UP A BUSINESS.

Fact sheet

RUNNING YOUR BUSINESSWhen you go into business, it is important to understand your tax obligations. You may be liable for various Australian, state or territory, and local government taxes depending on the size and location of your business.

Apply for a TFN and an ABNAll businesses need to register for a tax file number (TFN), which is a

unique nine-digit number issued by the ATO to individuals and other

entities. The procedures for registration vary according to the business

structure adopted.

It is also usual to register your business for an Australian business

number (ABN), a unique 11-digit number used when dealing with other

businesses and government departments and agencies. You should

include your ABN on all business documents and invoices. A business

with revenue from certain sales above $75,000 a year must register for

the goods and services tax (GST), which requires an ABN. If you don’t

have an ABN, other businesses may be required to withhold ‘No ABN

withholding’ from any payment made to you.

(The top tax rate including Medicare levy is 47%; the No ABN

withholding rate is also 47%).

Why do you need an ABN?Your ABN allows you to:

� complete a business activity statement, report your GST and claim

GST credits, if you are registered for GST

� confirm your business identity to other businesses and people

when ordering and invoicing � claim energy grants credits � obtain an Australian internet domain name.

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Register for tax paymentsYou need to register your business with the

ATO for any tax that applies to the operations

of the business. Generally speaking, this will

include registering for GST, fringe benefits

tax (FBT) and pay as you go withholding

(PAYG). These taxes are described further in

Explaining business taxes and The goods and

services tax (GST).2

Register for PAYG withholdingIf your business has employees, you are required to withhold tax from wages and salaries paid

to them. Your business must forward the withheld tax money to the ATO at regular intervals. The

ATO produces schedules for employers to help them calculate the right amount to withhold from

employees' wages. Employees are required to complete a tax file number declaration form before they

start to receive payments from a new employer. If they do not complete the form within 28 days of

starting employment, they will be taxed at a rate of 47%.

The amount deducted will vary according to whether the employee claims the tax-free threshold

and any tax offsets, and has any existing Higher Education Loan program (HELP) debts. The ATO

document How to complete the PAYG payment summary explains how to fill out a PAYG payment

summary for each employee.

At the end of the financial year, a business must issue a payment summary to each employee who has

had tax withheld. The summary must list information about gross payments, tax withheld (tax credits),

reportable fringe benefits amount, superannuation and other deductions.

The ATO credits employees for the amount of tax that is sent on their behalf by their employer. When

an employee lodges their tax return, the ATO calculates the amount of tax payable on their taxable

income. If the employee has paid more tax than necessary, the excess tax will be refunded to them. If

the tax already collected by the ATO is less than the amount of tax payable, the employee must pay

the extra amount.

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Your super obligationsWhat is super? Super (superannuation) is a form of saving which provides people with an income after retirement from work. Under the super guarantee scheme, most employees are entitled to a compulsory super contribution from their employers. As an employer, you need to pay super contributions for eligible employees and certain contractors. You must contribute, on at least a quarterly basis, a minimum amount

equal to a set percentage of the employee’s ordinary time earnings (9.5%) into a complying super fund or a retirement savings account (RSA). The following table show the due dates for super payments:

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All businesses need to register for a tax file

number.

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Quarterly payment due dates for super payments

Quarter Period Payment due date

1 1 July – 30 September 28 October

2 1 October – 31 December 28 January

3 1 January – 31 March 28 April

4 1 April – 30 June 28 July

Generally, the earning base is what the employee earns for ordinary hours of

work. Some employers pay more than the required amount, but those extra

amounts are voluntary. Eligible employees usually have a choice of which super

fund they belong to. Employers must provide eligible employees with a standard

choice form (or equivalent) within 28 days of their start date.

Certain groups of employees are not entitled to super contributions from their

employers. This includes those who earn less than $450 in a calendar month,

those who are under 18 years of age and work 30 hours or less in a week, and

those who provide work of a private or domestic nature for 30 hours or less a

week (for example, part-time nannies and housekeepers).

The module on Super provides more detailed explanation of superannuation.

Calculate income tax for a businessThe tax equation for a business is similar to that for an individual. The business must calculate its taxable income. The process broadly follows these steps:

Calculate:

Assessable income

Subtract

Allowable deductions

Equals

Taxable income

Work out

Tax on taxable income

Subtract

Tax credits/offsets/rebates

Equals

Net amount payable/refund**

** The amount of tax payable/refund due will depend on whether the business is a

sole trader, partnership, company or trust.

Payment of other business taxes is considered in Explaining business taxes and The goods and services tax (GST).

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iWhen you cease or sell a businessA business must tell the ATO when it has ceased trading or has been sold. The business needs to cancel its ABN and GST registration. Before cancelling an ABN, a business needs to ensure it has met all lodgment, reporting and payment obligations to government agencies, including paying any outstanding tax debts.

Employers need to pay super

contributions for eligible employees and certain

contractors. The current rate of contributions is 9.5% of ordinary time

earnings.

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TASK 1 APPLYING FOR AN ABN AS A SOLE TRADERBusiness Tax Activity 3: What is a business?

Worksheet

Years 7-10

YOU WILL: � complete an ABN application as a sole trader � reflect on how difficult it was to complete the form and

suggest how businesses might seek help

YOU WILL NEED: � Fact sheet: Running a business – Tax obligations � Answer Sheet: Task 1 – Applying for an ABN as a sole trader

APPLY YOUR KNOWLEDGE

ScenarioYou are setting up a business called Quik Chicken which will sell tasty chicken and other snack products. The business is to be situated in a large, modern shop at 123 High Street, Newtown. This is your first business. You need to apply for an ABN and register for GST. According to your business plan, you expect sales revenue to be $200,000 in the first year. You intend to account for GST on a cash basis quarterly and you will not import goods into Australia. You plan to set up your business on 1 July 2017.

The business will employ four people to work in the shop, preparing, cooking and serving the various fast food products it sells. You will employ employees on a full-time and part-time basis. The wages bill will be approximately $80,000 per year and withholding tax approximately $20,000. In future you will lodge all of your forms electronically. The business will print its own payment summaries for its employees.

� Your TFN is 123 456 789. � You are an Australian resident for tax purposes and you do not want to register for fuel tax credits. � You want to nominate yourself as the authorised contact person. � The business banks with the ABC Bank; the BSB code is 103-338; the account number is 987654310.

1. Apply for an ABN using the attached ATO application form. There are two ways of getting an ABN for your business. You decide to use the form option because you do not have access to a computer at your shop or home. This will change once you get the business up and running. You will need to place an 'X' in all applicable boxes and fill in various parts. Use your own name and your address for the business. You will need to make up some of the details asked on the form.

REFLECT 2. How hard did you find it to fill in the form? Consider some people who might have problems completing the form. List some

people you might go to for help.

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Application for ABN registration for individuals (sole traders)

The fastest way to get an ABN is to apply online at abr.gov.au. Only use this paper form where you are unable to apply online.

As long as we can validate your details against data in our systems, your ABN will be issued immediately and written confirmation of the ABN registration will follow.

NAT 2938-01.2016

INSTRUCTIONS FOR COMPLETING THIS FORMRefer to Application guide for further information on how to complete this form.Check that you are entitled to an ABN.You can complete this form electronically or with a pen. If you choose to use a pen:■Print clearly, using a black or dark blue pen.■Use BLOCK LETTERS and print one character per box.

S M I T H S T

■Place X in all applicable boxes.

■Do not use correction fluid or covering stickers.■Do not use pins or staples to attach additional details.

ABN ENTITLEMENTBefore completing this form, it is important to ensure you are entitled to be registered for an ABN.

To be entitled to an ABN, you must be carrying on an enterprise in Australia or in the course of carrying on an enterprise you make supplies that are connected with the indirect tax zone.

Taking steps to start your business requires more than an intention to carry on a business. Activities that evidence you have started business or are taking steps to start your business include activities such as:■ issuing quotes or bidding for work■advertising, setting up a social media account or a website

for the business■consulting with financial, business or tax advisors■applying for finance or opening a bank account for the

business■ leasing premises or equipment for the business

For more information about entitlement to an ABN refer to the Application Guide, visit abr.gov.au or phone 13 92 26 between 8.00am and 6.00pm, Monday to Friday.

■purchasing premises, equipment or stock for the business■buying a business■obtaining business licences or insurance to operate

(for example, public liability/professional indemnity)■ registering a patent/copyright■obtaining a registered business name■completing a business plan, feasibility study or financial

projections■ registering with relevant professional or industry associations

for the business■having existing clients■purchasing business cards or stationery for the business■ recruiting staff for the business

You do not need to have undertaken all of these commencement activities. It would be expected that you would have undertaken several of them in order to demonstrate your commitment to starting a business.

You ARE NOT ENTITLED to an ABN if your activity is carried out:■ in connection with earning a payment as a company director,

as an office holder■under a labour hire arrangement■as an employee who receives a salary or wage in return

for work or services rendered■as a private recreational pursuit or hobby■as a member of a local government body, for example, as

an elected member of a city, town or shire council.

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Section A: Sole trader information

2 Doyouhaveataxfilenumber(TFN)?

No Have you applied for a TFN?

Yes Provide your TFN.

Yes

NoYou must provide documents to prove your identity.Refer to the Application guide for further information.

The Registrar of the Australian Business Register is authorised by the Taxation Administration Act 1953 to request your TFN. We will use your TFN to identify you. It is not an offence to not provide your TFN. If you do not provide your TFN, your registration may be delayed where we need to establish Proof of Identity.

1 Whatisyourfullname?

Date of birth

Day Month Year

Family name

First given name Other given names

Title: Mrs Miss Ms OtherMr

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Section B: Business contact details

4 DoyouhavemorethanonebusinesslocationinAustralia?

No

YesFor each business location in Australia, include all business location details (as in question 3) on a separate sheet of paper.

Go to question 5.

5 Whatisyourpostaladdressforserviceofnoticesandcorrespondence?This is the address where government departments and agencies will send notices and correspondence.

As above If your postal address is the same as the main business address, place a cross in this box.

Country if other than Australia

Suburb/town/locality Postcode

(Australia only)

State/territory

(Australia only)

Street address

3 Whatarethecontactdetailsforyourmainbusinesslocation?This must be a street address, for example, 123 Smith St.It cannot be a post office box number, roadside mailbag, roadside delivery or other delivery point address but it can be a home address if you operate a home-based business.

Country if other than Australia

Suburb/town/locality Postcode

(Australia only)

State/territory

(Australia only)

Street address

Business hours phone number

Mobile phone number

After hours phone number

Fax number

Email

6 Whatisyourpreferredemailaddressforserviceofnoticesandcorrespondence?This is the email address where government departments and agencies may send notices and correspondence.

As above If this email address is the same as the main business email address, place a cross in this box.

Provide only one email address.

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Section C: Authorised contact

9 Doyouwanttonominateadditionalauthorisedcontacts?

No

Yes Provide the following details on a separate sheet of paper for each additional authorised contact:■ title each page with ‘Add authorised contacts’■your own full name (as provided at question 1) on each page■all information we request at questions 7 and 8.

8 Ifyourregisteredtaxagentisyourauthorisedcontact,providetheirregistration number.If this number cannot be found, leave this blank.

7 Tonominateanotherpersonasanauthorisedcontact,providethefollowingdetails.If you are the only contact go to section D: Reason for application.Details you provide here are for a person who may be contacted about your business. They must be authorised to make changes or update information on your behalf, for example your registered tax agent.

Family name

Position held

Preferred name Other given names

Title: Mrs Miss Ms OtherMr

Business hours phone number After hours phone number

Mobile phone number Fax number

Email

Preferred language, if other than English. We may not be able to speak to the contact person in their preferred language.

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Section D: Reason for application10 WhyareyouapplyingforanABN?

(select one reason only that best describes why you are applying for an ABN)

NewbusinessinAustraliaIs this your first time in business in Australia? No Yes

Investment purposesIs this your first time in business in Australia? No Yes

Contractororsubcontractor Is this your first time working as a self-employed contractor or subcontractor in Australia? No Yes

To receive payment for services Is this your first time working as a self-employed provider of services in Australia? No Yes

BoughtexistingbusinessIs this your first time in business in Australia? No Yes

What is the previous owner’s ABN?

RecommencedbusinessWhat ABN was used previously?

ChangeinbusinessstructureThe legal structure of your business has changed, for example, from a partnership to a sole trader.

What ABN was used previously?

Provide details below.Other circumstances – only select this reason if none of the above apply.

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Section E: Business activity details

15 Doyouoperateanagriculturalproperty?An agricultural property is land where the breeding, keeping, cultivation or growing of animals, crops, fruit or vegetables (except forest trees or marine life) is undertaken.

No Yes

Education and training

Health care and social assistance

Arts and recreation services

Other services

Transport, postal and warehousing

Information media and telecommunications

Financial and insurance services

Rental, hiring and real estate services

Professional, scientific and technical services

Electricity, gas, water and waste

Construction

Wholesale trade

Retail trade

Accommodation and food servicesManufacturing

Agriculture

Forestry

Fishing (including aquaculture)

Mining

13 Whatisthemainindustrythatyouoperatein?(Place in one box only.)X

Administrative and support services

Public administration and safety

11 FromwhatdatedoyourequireanABN?■This date should be when you start setting up the business, not when you

start trading.■ If the date is in the future, you will not receive your ABN until that date.

The date cannot be more than six months into the future.

Day Month Year

12 Ifyouintendtoceasebusinesswithinthreemonthsofthestartdate,whatistheexpectedcessationdate?If you intend for your business activity to be longer than three months, leave this question blank.

If you register for GST, you will need to complete monthly activity statements.

Day Month Year

14 Describethemainactivityfromwhichyouderivethemajorityofyourbusinessincome.Also describe the main goods produced or the main services provided.

Section F: Taxation details

16 AreyouaresidentofAustraliafortaxpurposes? No Yes

17 Doyouwanttoberegisteredforanyofthefollowing?Refer to section F: Taxation details in Application guide for information on eligibility for these options. To register for luxury car tax or wine equalisation tax, you must also register for GST.

(Place X in all applicable boxes.)

Fringe benefits taxLuxury car tax Wine equalisation tax

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Section G: Goods and services tax (GST)

18 AreyourequiredbylawtoregisterforGST?You are required to register if you:■are carrying on an enterprise and your GST turnover is $75,000 or more (see question 21)■supply taxi or limousine travel for fares■are a representative of an incapacitated entity (where the incapacitated entity is registered or required to be registered), or■are a resident agent acting for a non-resident (where the non-resident is registered or required to be registered).

No Yes Go to question 20.

19 DoyouwanttovolunteertoregisterforGST?If you are not required by law to register for GST you can choose to register voluntarily if you are carrying on an enterprise or intend to carry on an enterprise in the near future.

No Go to section I: Pay as you go (PAYG) withholding. Yes

20 WhatisyourdateofregistrationforGST?If you are required to register for GST, your date of registration is the date:■your GST turnover met or exceeded the registration turnover threshold of $75,000■you commenced supplying taxi or limousine travel for fares■you commenced representing an incapacitated entity, or■you commenced in your capacity as a resident agent for a non-resident.

If you are volunteering to register for GST, you can choose your date of registration.

The date of registration for GST cannot be before the ABN registration date provided at question 11.

Day Month Year

21 WhatisyourGSTturnover?To work out your GST turnover, you should calculate your current and projected GST turnover figures. Refer to the Application guide for more information about GST turnover.

$0 to $74,999$75,000 to

$149,999$150,000 to $1,999,999

$2 million to $19,999,999

$20 million and over

(Place in one box only.)X

Monthly Quarterly Annually

22 Howoftenwillyoulodgeyouractivitystatements?If your GST turnover is $20 million or more, you must lodge monthly electronic activity statements and you must provide an email address at question 6.

If your GST turnover is less than $20 million, you may choose to lodge monthly or quarterly, except if you register to defer GST on importation of goods, which you are then required to lodge monthly.

If you volunteer to register for GST, you can choose to lodge either monthly, quarterly or annually.

23 DoyouintendtoaccountforGSTonacashornon-cash(accruals)basis?Refer to the Application guide for more information about cash and non-cash accounting method.

Cash Non-cash (accruals)

24 DoyouimportgoodsintoAustralia?

No Yes You may be eligible to defer GST on imports. Refer to the Application guide for explanation.

You cannot register for GST if you are not carrying on an enterprise. Some sole traders are required to register, while others may choose to voluntarily register for GST. For more information on GST registration refer to the Application guide.

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27 Whichfueldoyouuseinyourbusinessactivities?

Diesel

(Place in all applicable boxes.)X

Petrol Other – including gaseous fuels

25 Doyouneedtoregisterforfueltaxcredits?

No Go to section I: Pay as you go (PAYG) withholding.

Yes

To register for fuel tax credits, you must also be registered for GST. Refer to Application guide for more information about Fuel tax credits.

26 Fromwhatdateareyoueligibleforfueltaxcredits?This date cannot be before the date you have provided at question 20 (date of GST registration) or 1 July 2006 (when fuel tax credits commenced).

Day Month Year

28 DoyouusefuelinavehiclewithaGVMgreaterthan4.5tonnestravellingonapublicroad?

No

Yes

Section H: Fuel tax credits

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Section J: Financial account details

If the account you wish to nominate for refunds is not one of the four complying account options presented above, you can request the Commissioner of Taxation to exercise his discretion to pay electronic funds into the account of a third party. For more information, phone 13 28 66 between 8.00am and 6.00pm, Monday to Friday.

35 WhatareyourfinancialinstitutionaccountdetailsforATOrefunds?Refunds will only be paid directly into a recognised financial institution account located in Australia. The account details provided must be held by:■you (solely or jointly)■your registered tax agent■a legal practitioner acting as your trustee or executor.

If you do not provide these details we cannot refund money.

BSB code (must be 6 digits) Account number

Is the account held by: youyou jointly

with othersyour registered

tax agent a legal practitioner as your

trustee or executor

Full account name – for example, JQ Citizen. Do not show the account type, such as cheque, savings, mortgage offset.

Section I: Pay as you go (PAYG) withholding

30 Howmanyemployeesdoyouestimateyouwillpay?This information is used to provide you with the correct number of payment summaries at the end of the financial year.Do not include people under a voluntary agreement or labour hire arrangement.

,

31 Whatamountdoyouexpecttowithholdfrompaymentstoyourpayeeseachyear?Refer the Application guide for more information on PAYG withholding amounts and how often you will need to remit to the ATO.

$ , ,.00

32 HowwillyouprovideyourPAYGwithholdingpaymentsummaryannualreporttotheATO?This annual report may be lodged online, or by paper using forms we supply.Indicate the method you plan to use to lodge your PAYG withholding payment summary annual report.

Go to section K: Declaration.Paper form supplied

by the ATOOnline

33 Howwillyouprovidepaymentsummariestoyourpayees?Provide your own

payment summariesUse payment summaries

supplied by the ATO

34 Will you pay royalties, dividends or interest to non-residents, orareyouaninvestmentbodythatwillpayinvestmentincometoAustralianresidents? No Yes

29 AreyourequiredtoregisterforPAYGwithholding?

No Go to question 36.

Yes When will withholding commence?

Day Month Year

This date cannot be before the date provided at question 11 (ABN registration).

Refer to Application guide for information on PAYG withholding.

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Section K: Declaration Must be completed by the sole trader or an individual authorised by the sole trader.

Make a copy of this application for your own records before you send the original copy to:Australian Business Register PO Box 3000 ALBURY NSW 2640

We will aim to provide a decision on your application within 20 days of receiving all the necessary information. If your application is incomplete or incorrect, it may take longer. Do not lodge another application during this time.

Lodging this form

Before you sign this formMake sure you have answered all the relevant questions correctly and read the privacy statement below before you sign and date this page. An incomplete form will delay processing and we may ask you to complete a new application.

Penalties may be imposed for giving false or misleading information.

PrivacyTaxation law authorises the Registrar of the Australian Business Register (ABR) to collect information, including personal information about the person authorised to sign the declaration. For information about your privacy go to http://abr.gov.au/general-information/privacy

You MUST SIGN here

Signature

Day Month Year

I declare that the information given on this form is true and correct.

OR

I declare that:■ this document has been prepared in accordance

with information supplied by the sole trader■ I have received a declaration in writing from the sole

trader stating that the information is true and correct■ I am authorised by the sole trader to give this

document to the Commissioner of Taxation or Registrar of the Australian Business Register.

36 Whoissigningthisdeclaration? (Complete all of the fields below.)

Full name of signatory

Position held (for example, owner, proprietor, registered tax agent)

Print form Reset form

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DEVELOP ADVICEPrepare a flow chart or a diagram with some text that shows the steps each manager should take when hiring staff. The chart/diagram must identify the following:

� what needs to be done � who needs to do it � when it needs to be done � why it needs to be done � what happens if it is not done.

When developing your flow chart or diagram, consider the following obligations:

� TFN declaration � PAYG withholding � superannuation � payment summary.

PRESENTATIONThe final product will need to be in a format that is convenient for sending a copy to each manager and can be updated easily when required.

TASK 2HIRING EMPLOYEESBusiness Tax Activity 3: What is a business?

Worksheet

Years 7-10

YOU WILL: � create a diagram or flow chart identifying the steps required

by employers in order to fulfil their tax obligations when hiring

YOU WILL NEED: � Fact sheet: Running a business: Tax obligations � Answer Sheet: Task 2 – Hiring employees

What do you need to know when you hire staff for your business?

Not doing it right can end up wasting a lot of time.

ScenarioYou are the accountant/human resources manager for Oz Clobber, a business that sells Australian-themed clothing largely to tourists. The business consists of a small number of retail shops who generally engage their own part-time staff. Despite frequent reminders, you have found that the managers of the shops do not complete the required paperwork accurately or fully when hiring an employee. This has meant a lot of wasted time as paperwork goes backwards and forwards. You have decided you need to do something to prevent this waste of time, and to ensure the business meets its legal obligations at the point of hiring.

flow chartdiagramlist of instructionsaction planprocess diagram