It’s that time of year again where we non-finance people Google the business tax terms we probably should know.
In this guide, you’ll find a glossary of tax terms for small businesses (or big businesses), ideal for beginners or those needing to brush up on their finance terminology.
Of course, for those terms you can’t find here but may need specific to your situation, reach out to your local business accountant. They’ll be able to guide you in the right direction.
Disclaimer: The information on this page is for general informational purposes only. All efforts have been made to ensure information is correct at time of publishing. Neither Localsearch nor the author are liable for any misuse of any information on this page. Please consult a finance official or government source for information relevant to your specific circumstances.
Top 23 Business Tax Terms You Need to Know
1. Aggregated Turnover
Aggregated turnover refers to your business’s annual turnover, plus the annual turnover of any other business entities annual turnover connected to you or is your affiliate.
Annual turnover refers to gross income, not net profit.
An example from the ATO website of aggregated turnover:
“For example, a sole trader operating a part-time consultancy and a retail shop would include the income from both business activities when working out annual turnover. Likewise, a company providing construction and project management services through separate arms of its business would need to include income from both activities when working out annual turnover.”
2. Assessable Income
Assessable income is income you receive from carrying out business activities that are eligible for being assessed for tax purposes. This can include all gross income (including sales made over the internet or in-person), as well as other business income not part of everyday business activities, such as changes to capital gains, cash prizes for your business and more.
3. Australian Business Number (ABN)
An Australian Business Number (or ABN) is a unique 11 digital number used by the government and the public to identify your business. You can use your ABN to claim goods and services tax (GST) credits, energy grant credits, to claim an Australian domain name and more. The public can also use your ABN to identify your business when you make orders or send invoices.
Applying for an ABN is free and can help make running a business, acting as the trustee of a super fund, operating a charity, or renting or leasing property as a business easier.
4. Authorised Representative
In relation to the Australian Taxation Office (ATO), an authorised representative is someone who you have authorised to contact the ATO on behalf of you in relation to your business.
Understanding authorised representatives can be quite complex. They are typically broken down into a Primary contact and an Authorised Contact.
A Primary contact can be a public officer (such as the person who handles the record keeping or submits the company returns) or certain office holders. They can access all roles on the account, as well as add, remove, update the list of authorised contacts.
An Authorised contact is typically a registered tax agent, registered BAS agent, temporarily appointed tax professional or specialist tax adviser. They cannot add, remove or update the list of authorised contacts, but can act on your behalf for your business’s tax affairs.
If you need to appoint an Authorised Representation, please refer to the ATO website for more information.
5. Business Activity Statement (BAS)
Businesses registered for GST will need to lodge a business activity statement, or BAS. The ATO automatically sends you a BAS when it’s time to lodge if you have registered for both an ABN and for GST.
Your BAS will help you report on and pay your:
- Goods and services tax (GST).
- Pay as you go (PAYG) instalments.
- PAYG withholding tax.
As well as any other taxes required of your business.
6. Capital Gains Tax
Whenever you sell assets for a profit, you will need to pay capital gains tax. For example, if you own and sell an investment property or shares, you will pay tax on the capital gains of these sales.
As someone operating a business, you may have to pay capital gains tax if you sell a commercial premises or the business itself for a profit. However, you may be eligible for small business capital gains tax (CGT) concessions.
As you can see, it’s important to speak to a finance professional before buying or selling any assets for profit.
While an employee works for someone else’s business, a contractor runs their own business and sells their services to others.
Contractors may also be known as independent contractors, sub-contractors or subbies.
Some of the key differences between an employee and a contractor:
- An employee is paid for time worked, by item or activity or commission, while a contractor provides a quote for the work to be completed.
- Employees take on no commercial risk for completing work, while contractors are legally responsible for their work.
- All employees are considered part of your business, while contractors work independently as part of their own business, contracted to perform work for your business.
You can learn more about the differences between employees and contractors over on the ATO website.
A deduction is an expense you made for business activities claimed at tax time to reduce your taxable income. They must relate directly to earning your income and for your business (not for personal/private use) and you must have records to substantiate the claim.
Examples of business tax deductions include:
- Business travel expenses.
- Salaries, wages and super contributions for workers.
- Operating expenses.
- Repairs, maintenance and replacement of expenses.
- Home-based business costs.
- Motor vehicle expenses relating to the business.
- Depreciating assets and other capital expenses.
An employee is just someone who works for your business right? Well, as we know above, a contractor can also perform work for your business.
When someone is an employee, you will need to withhold tax (PAYG withholding) from their wages, as well as report and pay the withheld amount to the ATO. You’ll also need to pay super for eligible employees, and report and pay fringe benefits tax (FBT) if you provide said employee with fringe benefits.
On the other hand, a contractor will generally handle their own tax obligations unless they don’t provide you with an ABN or you’ve voluntarily agreed with them to withhold tax from payments to them.
10. Fringe Benefits Tax
Fringe benefits tax is tax paid by employers on benefits they provide to employees (or an employee’s family or other associates) other than salary or wages.
For example, allowing an employee to use a work car for personal purposes, paying an employee’s gym membership, reimbursing expenses incurred by an employee (such as education fees) or similar may be fringe benefits.
However, salary and wages, shared purchased under approved employee share acquisition schemes, employer contributions to complying super funds, employment termination payments and benefits provided to volunteers and contractors is not considered fringe benefits.
11. Goods & Services Tax (GST)
Good and services tax (GST) is another one of those more complicated tax terms.
Businesses with a GST turnover of $75,000 or more, non-profit organisations with a GST turnover of $150,000 or more and taxi travel providers (including ride-sourcing) will need to consider goods and services tax.
Some of the considerations include registering for GST, working out if your sales are subject to GST (or are GST-free), issuing tax invoices for taxable sales, claiming GST credits, accounting for GST and lodging activity statements.
Businesses registered for GST will generally include GST in the price they charge for their goods and services. They will also claim credit for the GST included in the price of goods and services they buy for their business.
As this is a complex matter, we recommend speaking to a financial professional and referring to the ATO website for GST.
12. Income Statement
A business profit and loss (income) statement is different to that employees receive. Employees receive an income statement from an employer using single touch payroll outlining how much they have earned for the year, tax withheld, etc.
Profit and loss statements include all a business’s sales and expenses. As a result, you can easily see your business’s profits and/or losses. You can then use this to help set prices for your goods or services, as well as sales targets.
Each year, your business will need to report actual or forecasted figures for:
- Total expenses.
- Net profits.
You’ll also need to clearly state whether your figures include or exclude GST.
13. Income Tax
Income tax refers to the tax you need to pay on your business’s taxable income, calculated by your assessable income, minus any deductions.
Businesses must lodge an income tax return for any year they are in operation.
When your business receives a certain amount of income, you’ll pay your income tax in instalments, which are normally quarterly. Breaking up the payments helps businesses be able to meet their tax obligations easier with smaller sums.
You can learn more about income tax, concessions and obligations over on the business.gov.au website.
In government terms, a partnership is a business structure made up of 2 or more people who distribute income and losses between themselves. However, there are three main types of partnerships:
- General partnerships (GP) which is where all partners are equally responsible for managing the business. All parties have unlimited liability for all debts and obligations the business may incur.
- Limited partnerships (LP) refer to a group of general partners whose liability is limited to the amount of money they contributed to the partnership. These types of partners are usually passive investors who don’t play a role in the day-to-day management of the business.
- Incorporated limited partnerships (ILP) are where partners have limited liability for the debt incurred by the business. There must be at least one general partner with unlimited liability, where they would be personally liable for the shortfall.
Partnerships structures are reportedly easy and inexpensive to set up, but it is recommended you talk to a finance professional before doing so. You can learn more about each state’s partnership laws on the business.gov.au website.
15. Sole Trader
A sole trader is an exclusive owner of a business who is legally responsible for all aspects of said business, including debts, losses and day-to-day business operations.
Sole traders and companies have different legal, tax and reporting obligations, including sole traders having fewer set-up costs. The ATO treats any money you earn as a sole trader as your individual income.
16. Single Touch Payroll (STP)
Single touch payroll (STP) helps businesses report on employee payroll information. STP allows businesses to report salaries and wages, pay as you go (PAYG) withholding and superannuation through STP-enabled software each time it is paid.
For businesses with 20 or more employees, STP started from the 1 July 2018, while it began for businesses with 19 or fewer employees on 1 July 2019.
17. Super Guarantee
Super guarantee is a minimum percentage of superannuation businesses are obligated to contribute to their employees. A super guarantee charge applies when businesses not pay the minimum percentage or above by the transitional date.
You can learn more about current super guarantee percentages on the ATO website.
18. Tax Concession
A tax concession is a reduction the government can make in the amount of tax businesses (or a particular group) must pay or a change in the tax systems that may benefit you (or the group).
The Australian Government will typically include concessions for small businesses with turnover of up to a certain amount.
Learn more about the current tax concessions for small businesses on the ATO website.
19. Tax File Number (TFN) Declaration
A tax file number declaration is a form provided by an employee so you can work out how much tax to withhold from an employee’s pay.
Tax file number declarations must be completed by all employees.
20. Tax Offset
The small business income tax offset can help reduce the tax you pay by up to $1,000 each year, if you are eligible.
Whether you are eligible and how much of an offset you receive are calculated on the proportion of tax payable on your business income.
Visit the ATO website for more information about eligibility and the small business income tax offset.
21. Tax-Free Threshold
Tax-free threshold refers to an amount of income the government has declared you can earn and be tax free. For example, an individual may be able to earn up to a certain amount and not have to pay tax on that amount.
However, sole-trader structures also have a tax-free threshold, as sole traders are taxed as part of their personal income.
On the other hand, businesses do not receive a tax-free threshold.
22. Taxable Income
Taxable income refers to the income you receive you must pay tax on. Allowable deductions can help reduce the amount of taxable income you have to pay as they help lower your assessable income.
Trusts are one of the more complex business structures. A trust structure allows a trustee to hold your business for the benefit of others (the beneficiaries).
For a trust to operate, it must have its own Australian Business Number and tax file number, and requires a formal trust deed outlining how the trust operates. As such, they can be expensive and complicated to create.
The trustee — who is legally responsible for the operation of the trust — must also undertake formal yearly administration tasks.
If you’d like to explore a trust structure, it’s best to consult both a legal and financial professional.