Do you feel like you’re constantly paying a different type of tax, always behind, being contacted by the ATO or your accountant to make payments or needing to ask the ATO for a payment arrangement? This is super overwhelming and honestly – you don’t need to feel this way! In our blog below, we unpack the 5 types of taxes and payments you’ll need to make to the ATO throughout the year. We explain in super simple terms exactly what each of these taxes are (and sometimes how they relate to each other), we briefly explain how they’re calculated so you have a baseline understanding of this AND we provide you with a simple calendar that you can print off and keep so you know exactly when you’ll need to be paying each amount.
So let’s take the overwhelm and the feeling of constantly being behind away from you and replace it with a feeling of understanding and being in control :)
Let’s go!
1. Pay As You Go Instalments
Remember back when you were an employee and your boss would withhold a certain amount of tax each pay period and you would get the rest? Well – that doesn’t happen once you’re a business owner! There’s no one helping you out and putting your tax aside for you. So instead – the Tax Office get you to take some tax out every quarter and pay them in advance. This is actually really helpful and ensures you don’t have a large tax bill at the end of the year! What ever you pay in PAYG Instalments offset against your tax bill.
How do they determine how much to take out? The amount the Tax Office tell you to pay is based on your previous year’s tax return. If your situation has changed and you’re earning less money then don’t worry, your accountant can reduce the amount of tax you pay each quarter to align with your new reduced income :)
When do I need to pay this?
You will receive quarterly instalments for 30th September, 31st December, 31st March and 30th June each year. If you have an accountant, you’ll get an extension and won’t need to pay the tax instalment until 2 months after these dates.
Just to confirm, is this an EXTRA tax I’m now paying? NO definitely not! These PAYG Instalments will sit as a credit on your account and offset and reduce any tax you need to pay the end of the year (read below for this income tax!)
2. Income Tax
Income tax is what you do after 30 June each year!
To work out the income tax you/your company needs to pay your Accountant does the following calculation:
1. Your taxable income (sales to clients)
2. Less your taxable expenses (things like gym rent, electricity, wages, equipment etc).
3. = Your Taxable Income
4. From your taxable income there are various formulas to work out your TAX PAYABLE. For a company, this is simply 25% of the taxable income
Let’s do an example!
1. Your clients pay you $20,000 during the year.
2. You pay out $15,000 during the year for rent, wages, equipment and other tax deductible expenses.
3. Therefore your taxable income - $20,000 - $15,000 = $5,000
4. The company tax rate is 25% so you need to pay 25% x $5,000 = $1,250
5. BUT you’ve already paid $1,000 in PAYG Instalments (mentioned in tax no 1. above)
So this gets subtracted from your tax payable and now you only need to pay $250 in tax!
When is my income tax payable?
There are a few different dates that may be relevant to you, but usually your income tax won’t be due until mid May of the following year! So if we’re doing your 2023 tax return, you won’t need to make any payment until 15th May 2024.
This is why it’s a good idea to do your tax return early, so if you do have a tax payable amount, you have several months to start saving for it.
3. GST
GST is a completely DIFFERENT tax to the 2 taxes we’ve just mentioned! Where income tax is paid by everyone earning income, GST is only paid by businesses with revenue over $75,000 per year and is calculated as 10% on most goods and services.
GST is calculated and paid quarterly. So we look at your GST for the September quarter, December quarter, March quarter and June quarter. The document we use to prepare your GST calculations and send it to the ATO is called your Business Activity Statement (BAS).
To calculate your GST we look at your sales and subtract your expenses that have GST on them (such as rent, equipment, utilities, telephone etc). What ever this comes to, you pay 10% to the tax office as GST.
Let’s look at an example
Your clients pay you $40,000 during the period 1st July 2023 to 30th September 2023 (Ie the September quarter).
During this time you pay out $30,000 in expenses which have GST on them.
Therefore your GST income is $10,000.
You need to pay $10,000 x 10% = $909.09 in GST to the ATO
Do I then also get taxed on this amount at the end of the year?
Absolutely not! When we prepare your tax return, we remove the GST component already paid to ensure you’re not being taxed twice on the same amount!
When should I register for GST?
You need to register for GST when it "looks like" your business will earn more then $75,000 in a 12 month period. You don't wait until you actually reach this $75,000 amount! So if you're earning more then $6,250 per month I suggest you get in touch with your Accountant to start preparing for registering for GST in the coming months.
4. Pay As You Go Withholding
When you were an employee and your employer took tax out of each pay run – THIS was PAYG withholding tax!! And this is the tax you need to take out for your staff as well. So if you have staff (either casual, full time or part time) you will need to withhold a certain amount of tax from their pay and then give this money to the ATO each quarter. Don't have staff? Then you can skip this section and move onto the next!
How much do I take out?
If you’re using a payroll software like Xero, Quickbooks or MYOB then it should tell you how much to take out.
You could also use this calculator: https://www.ato.gov.au/Calculators-and-tools/Tax-withheld-calculator/#Choosetherightcalculator1
When do I need to pay this money to the ATO?
Your employees PAYG withholding tax gets paid quarterly in September, December, March and June statements.
5. Superannuation
If you have employees (including yourself) then you are required to make quarterly superannuation payments. An easy and free way to do this is via the ATO clearing house. The Tax Office are very strict on ensuring employers pay their employees superannuation. So to ensure you’re paying the right amount using the correct channels, I do recommend getting your Accountant to set this up for you. If you don't have employees - then you may be able to skip this one! Though it could also be worth getting in touch with your accountant or super expert to discuss whether you should be putting away some superannuation for your own retirement!
How much super do I pay?
The minimum amount of super payable is 11% of an employees wage. If you are using a payroll software program such as Xero, Quickbooks or MYOB then it should calculate this for you and tell you exactly how much to pay at the end of the quarter.
TAX PAYMENTS CALENDAR
Ok, so now you understand the 5 types of taxes you'll be paying during the year. But WHEN do you need to make all of these payments? Easy, download our tax payments calendar which lists out all of the due dates and when each type of tax is due!
P.S
If you want to feel even more control of your finances and taxes – reach out for a FREE 15 minute phone call with me where we can run through the pain points you’re experiencing in your business and offer some simple and efficient solutions that to help you get on top of the financial and tax side of your business!
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