Tax guide for starting a business (Australia)

We know tax is not your favourite three-letter word but when you start a business, you do need to understand your tax obligations pretty quickly.

So here's a quick guide.

Tax returns
Even in the beginning, you are likely to have three tax returns each year:

  • One for your company*
  • One for your family trust*
  • One for you, personally (as a startup founder)

*Don’t want to set up a company and family trust? We recommend it for a bunch of reasons, explained here.

If your company’s financial year ends on 30 June, your tax returns need to be lodged and any tax needs to be paid by 15 May the next year.

All about GST
You have to register for GST once your business’s annual revenue reaches $75,000 but many people register before then so they can claim GST back on business purchases - especially companies spending on R&D pre-revenue..

Once registered, you lodge quarterly Business Activity Statements (BAS), which the ATO (or your accountant) will notify you about.

This is when you’ll also pay any GST you owe or receive cash back from the ATO – it depends whether you paid more GST than you earnt or vice versa.

Employees and PAYG withholding tax
PAYG (pay-as-you-go) withholding is tax you hold back from your employees each pay cycle, so it can be paid to the ATO. It involves a few steps:

  1. Register as a PAYG withholder with the ATO
  2. If you’re using software like Xero for payroll, it will calculate how much tax you need to hold back from each employee
  3. Pay the PAYG withheld amount to the ATO on time
    (either quarterly with your BAS if you are withholding under $25,000 in total PAYG for the financial year or monthly, via an Instalment Activity Statement, if you’re withholding $25,000 or more in total PAYG for the financial year)
  4. Provide annual payment summaries to employees by 14 July after the end of the financial year (if your financial year ends on 30 June)
  5. Lodge employee payment summaries with the ATO by 14 August

Other taxes you might need to pay
Once your company’s payroll reaches about $47,000 per month, you’ll probably need to pay state-based payroll taxes. You might also have to pay PAYG income tax instalments.