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NAVIGATING NEW TAX LAWS

NAVIGATING NEW TAX LAWS

with GILLIAN NATHAN

Having moved from South Africa to Australia 5 years ago, I understand that switching countries and giving up everything that is familiar can be a double edged sword – an exciting new adventure, but one that is both daunting and at times overwhelming.

I remember being intimidated by basic things such as grocery shopping or finding my way around the city, let alone navigating complex new tax laws.

To help overcome anxiety at the end of the financial year, here is an overview of the tax system in Australia:

The financial year runs from 1 July to 30 June of the following year. Everyone choosing to live in Australia needs to apply for a Tax File Number (TFN). If you earn a salary, your employer will withhold tax from your earnings and pay the ATO on your behalf. You may elect to use the ‘tax free threshold’.

You will receive a Payment Summary (an RSA IRP5 form) in July which shows your annual earnings and taxes paid. Generally your employer is required to contribute to a Superannuation fund (like a pension fund) (of your choice) at 9.5% (current) of your earnings.

Income received by individuals is taxed at progressive rates from 0% to 45%, plus a Medicare levy of up to 2%, and a Medicare levy surcharge of 2% (if you earn above certain thresholds and do not have sufficient private medical health cover). You may lodge your own tax return, due by 31 October. You’ll need a myGov account linked to the ATO to lodge online using myTax (like SARS e-filing).

If you are conducting a business in Australia you will need an Australian Business Number (ABN), which is a unique 11 digit number that identifies your business. The ABN needs to be displayed on invoices you issue.

You may apply for an ABN at any time (no cost to you) through the Australian Business Register website. If you are a sole trader – the ABN will be issued in your name. You will need to register a business name with ASIC if you would like to trade under a name different other than your own name. You may have multiple business names attached to a single ABN.

If you want to trade as a company – you will need to establish a company. If the company name is your trading name you do not need to register a business name. Income derived by companies is currently taxed at a flat rate of either 30% or 27.5% depending on the annual turnover. Terms you need to know are GST, BAS and PAYG.

GST (Goods and Services Tax) is a tax, based on the transactions you make in your business — that is, the sales and purchases. There are some GST-free sales and purchases but in general the GST is 10% of most of your business transactions. You need to register your business for GST if you currently earn gross sales of $75,000 or more in a financial year.

When your business is registered for GST you need to complete a BAS (Business Activity Statement) annually, quarterly or monthly, depending on the business reporting obligations.
If you employ staff, then PAYG withholding must be deducted from the gross wages and remitted to the tax office via the BAS or IAS each quarter or month, depending on the sum of wages you pay your staff. When your business makes a profit, and you start paying tax on this profit, then PAYG income tax instalments will be payable via the BAS. Note: Once you lodge your first business tax return, your business will be entered into the PAYG income tax instalment system, and you will need to pay tax on your business income in the year that the income is earned, via the BAS each quarter.

The tax system in Australia runs from 1 July to 30 June, and the quarterly periods are: 1 July to 30 September, 1 October to 31 December, 1 January to 31 March and 1 April to 30 June each financial year.

That’s it in a nutshell. Tax 101 in Australia. Of course – I have ignored things like capital gains, dividend franking credits, fringe benefit taxes and state payroll taxes… Sigh.

Get in touch with me at gillian@simplesolutionsaccounting.com.au if you need an accountant to both assist, and help educate you at the same time.

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