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For many people, the summer season is a time to relax and enjoy the long summer days, lazy evenings and a chance to take a long relaxing holiday. However, the reality for many small business owners and managers can be a world apart, especially for those whose busy period falls in the summer months. Seasonal […]
Read moreSMEs are prioritising sales and business development tools above all other innovation investments, confirming the strong appetite for growth and productivity in the sector. The renewed spending on sales support saw it edge ahead of customer service tools as the largest category of innovation spending for SMEs. Investment in manufacturing or production improvements was also […]
Read moreIf you’re considering expanding your business, you might feel both excited and nervous. The opportunity to grow your company to new levels of success is certainly an exciting prospect, but it is also not a decision to be made lightly and without due thought. By planning carefully, you’ll be able to ensure as smooth a […]
Read moreA massive 87% of West Australian SMEs are forecasting positive enterprise revenue growth in the six months to March 2023, compared to just 15% of SMEs in Victoria. The ‘boom or bust’ predictions of the two Australian jurisdictions most affected by COVID-related lockdowns are contained in the latest round of the bi-annual SME Growth Index […]
Read moreOur Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia’s small to medium sized business sectors showing cashflow issues that many businesses face today, below is one of six key insights found in our March 2019 report: For the first time in the five years and 10 rounds of the Scottish Pacific Business […]
Read moreToday’s volatile business environment makes it more important than ever for SMEs to shore themselves up against bad debts. The suspension of insolvency laws early in the pandemic may have held debt problems at bay, but this prop no longer exists. Fortunately, there are plenty of ways businesses can reduce the risk of bad debts […]
Read moreUpdated on 5th March 2024 Cybercrime continues to evolve to take advantage of new technologies, consumer behaviours and working arrangements. Despite combined activity by the Government, law enforcement, private sector, and community to disrupt and prevent scams, cyber-crime incidents continue to rise. According to the ASD Cyber Threat Report 2022- 2023 , the top 3 […]
Read moreHandling taxes is notoriously complex for Australian businesses. It can be overwhelming for SMEs, especially if you lack a dedicated, in-house accounting team.
But it’s vital to understand relevant tax laws, what your company tax rate is and how to properly report this information. This ensures you stay in the clear with the Australian Tax Office (ATO), while avoiding unnecessary penalties and headaches.
Here’s everything you need to know about corporation tax.
The corporate tax rate has fluctuated over the past 45+ years.
Trading Economics explains, it was at 45% between 1973 - 1979. It jumped up to 46% from 1979 - 1986, and rose again to reach its highest at 49% from 1986 - 1988. It has since dropped considerably.
Here’s a breakdown of what the corporate tax rate has been from the late 80s to today:
The full company tax rate is 30% and should remain there for the foreseeable future. This applies to companies, corporate unit trusts and public trading trusts.
Today’s companies pay considerably less for corporation tax than organisations in the past. In fact, it’s now 19% lower than it was at its peak between 1986 - 1988. 30% is actually a record low for Australia.
But as Shane Wright of The Sydney Morning Herald reports, Australia’s corporate tax is still one of the highest in the world. As of January 2019, it was the third highest globally, with only Costa Rica and Chile having higher rates.
For comparison, Australia’s prime competitors such as the United States, Britain, New Zealand, Canada and South Korea all had lower rates. The United States, for instance, is currently at 21%.
Not all companies pay a 30% corporate tax rate, however. Those who are classified as base rate entities are eligible for a lower company tax rate of only 27.5%.
The ATO explains, for the 2017 - 18 income year, a base rate entity is a company that both:
Base rate entity passive income can include royalties and rent, corporate distributions, gains on qualifying security and interest income.
The bottom line is that you can expect to pay a 30% corporate tax rate unless you qualify as an eligible base rate entity. In that case, you would only pay 27.5% until 2020. However, that is set to change in the near future.
Initiatives to lower the corporate tax rate will be taken in the near future, meaning corporate tax for base rate entities will drop over the next few years.
Companies who qualify will still pay 27.5% from 2018 - 20, but the aggregated turnover threshold will increase from $25 to $50 million AUD. After that, they’ll pay 26% with an aggregated turnover threshold of $50 million AUD from 2020 - 21. The following year, they’ll only pay 25% with an aggregated turnover threshold of $50 million from 2021 - 22.
In other words, corporation tax is decreasing for base rate entities over the next few years and will drop a total of 2.5% between 2017 - 18 and 2021 - 22.
Besides understanding what your company tax rate is, you need to know the basics of filing.
The Australian Government’s website, Business.gov, explains, “A company business structure is taxed as a separate legal entity that does its own tax return.”
They must lodge an annual company tax return, which includes company income, deductions and the income tax it’s liable to pay. Business.gov also points out companies must lodge their own tax return, and if an associated trust is involved, then they must lodge their own tax return as well.
Note: “As a director, if you draw wages as an employee or receive dividends from the company, you must report this as income when you lodge your own individual return. You may also need to lodge a fringe benefits tax return, if you receive fringe benefits.”
It’s important to get all your ducks in a row to ensure everything is reported properly. It’s also crucial that it’s done on time.
Tax returns for Australian businesses cover the time between 1 July and 30 June and are due by 31 October. Not filing on time is what’s known as a Failure to Lodge (FTL), which can potentially lead to penalties. The cost of the penalties can vary and is primarily determined by the size of your company.
Here’s how that breaks down.
The ATO says, “For a small entity, FTL penalty is calculated at the rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of five penalty units.”
This becomes larger for a medium entity with turnover of more than $1 million and less than $20 million AUD, where the penalty is multiplied by two. And it increases again for a large entity with turnover of $20 million or more, where the penalty is multiplied by five.
So the larger your company, the more severe the penalty.
It should be noted that the ATO is fairly understanding and accommodating when it comes to FTL. Organisations generally aren’t penalised when it’s an isolated incident, and warnings will be given either over the phone or in writing before incurring a penalty.
That said, it’s still extremely important to stay on top of corporation tax and take measures to ensure it’s taken care of by 31 October.
If there’s an issue where you have difficulty meeting the deadline or fulfilling your tax obligations, you should contact the ATO via this link. A registered agent can work with you to figure out a solution.
There’s one last thing to point about in terms of meeting ATO compliance standards.
You must retain your corporate tax records for five years. This is a required tax law, and the ATO can potentially penalise you for not retaining records for this length of time.
So be sure to keep everything on file so information can be quickly retrieved. Having both physical, paper documents as well as digital versions is ideal.
The information above covers the fundamentals of corporation tax and what you need to know to correctly file your taxes.
Here are some ways to simplify things and streamline the process.
Keeping organised, accurate records is vitally important. That’s something managing director at Australian Invoice Finance, Greg Charlwood, can’t stress enough.
You need an efficient, well-run filing system that provides you with a detailed snapshot of your company’s earnings at all times. Not only does this save time come when lodging and prevent frustration, it can be a godsend in the event of an ATO audit. It ensures that you’ve always got a paper trail and earnings can be easily traced.
Investing in a comprehensive corporate tax software like ONESOURCE is perfect for SMEs and offers a straightforward, cloud-based solution.
Charlwood also mentions it’s a good idea to write off bad debts before 30 June rolls around. If you’ve incurred a bad debt or partial bad debt because of a client failing to pay in full, it can be claimed as a deduction if it was included in your company’s assessable income.
In the event that a client doesn’t pay or doesn’t pay in full, this can help offset your costs.
This only applies to newer businesses with a turnover of less than $10 million AUD. But if your company falls into this category, you can claim a tax deduction for certain costs including:
While this may not have a huge impact, it should still be helpful and lower your overall corporation tax.
There’s a lot involved with Australian corporate tax. And it’s easy for SMEs to be confused and overwhelmed sorting through all of the details.
What’s most important is knowing what tax percentage you owe annually, whether you’re eligible for a base rate entity, correctly lodging corporate taxes on time and retaining tax information for five years.
Do that, and you should have a firm grasp on corporation tax, and your company should be in good shape.
What do you find most confusing about corporation tax? Please let us know about your experience, call us on 1300 505 883, or click here for us to get in touch.
Read moreSmall businesses are Australia’s economic backbone. Recent research found, more than 99% of all Australian companies are small businesses, and they contribute $380 billion AUD to the economy.
But one consistent issue these companies face is obtaining capital. Roughly a third of small businesses start with less than $7,200 AUD, and 58% start with less than $35,500.
Knowing where to turn can you help secure the capital needed for your business to flourish.
Here are some viable financing options:
One of the first avenues to explore is government funding. This isn’t necessarily an option for brand new startups, but it can potentially work if your growth is your focus.
Visit the Grants and Assistance Programs section of Business.gov.au to get started. Enter information like your postcode, industry and business objectives, and you’ll see which programs you qualify for.
Here’s an example.
Click on the specific program you’re interested in, and you’ll get an overview, eligibility criteria and learn how to apply.
For instance, one small business grant program was specifically designed for helping Melbourne-based companies grow and was offering up to $30,000.
This is perhaps the most convenient option and provides you with a line of credit for funding your small business. While business credit cards may not be the right choice if you need a large amount of funding, it can certainly help fill in the gaps.
They’re fairly easy to qualify for when compared to many other business loans and offer plenty of flexibility in terms of spending. Many offer rewards like cash back and travel points. They also give you a financial cushion so you can cover unexpected expenses as they arise.
An added plus is business credits can help build your credit score as long as you consistently make payments on time. In turn, this can help you lock in better interest rates on future business financing options.
The main drawback is that many come with high interest rates. If mismanaged, it can create a financial backlash that hurts your company. So you’ll want to thoroughly go over the details and make sure you understand the repayment terms.
This guide from Small Business Loans Australia highlights 5 of the top business credit cards to check out.
These are collateral-based loans where you put up a valuable asset such as your car or home in exchange for financing.
“What you choose to secure these business loans with, you’re essentially promising your lender that you’ll repay your loan,” says Fundera. If you aren’t able to repay your loan, the lender can use the collateralised assets or personal guarantee to legally recoup their losses.”
As a result, you need to be sure that you can repay a secured business loan in full and feel comfortable doing so.
Here are the pros:
Here are the cons:
To learn more about business loans and compare top providers, check out this resource from Finder.
Crowdfunding is a relatively new concept that’s gained a lot of traction as of late. This is where a business raises capital through “the crowd” — a group of people who support your idea and make financial contributions to your company.
This typically involves small amounts of money across a large group of people rather than just a large sum from a single investor. In exchange, backers usually receive some type of reward such as a pre-order of the product or branded merchandise.
Those seeking crowdfunding launch a campaign with a specific timeframe. If funding targets are reached by the deadline, you receive the money and backers receive their reward. Otherwise, you won’t receive the funds and backers won’t be charged. In other words, it’s all-or-nothing.
One of the main benefits of crowdfunding is that it’s low-risk. You’re not required to fulfill rewards unless your funding goal is met, and you don’t have to pay any money back like you would with business credit cards or a line of credit.
You’re also not losing any equity in the process. Backers are essentially donating to your company, so you don’t have to give up an equity stake to investors — something that can be huge if you’re successful.
On top of that, crowdfunding can give you some nice exposure. There have been instances where campaigns have went viral with brands basically becoming household names overnight. This makes it ideal if you’re a new startup looking to gain the attention of your target audience.
The downside would be that it takes time and money to create a campaign, and there’s always the risk of failure. If your campaign goal isn’t met by the deadline, you won’t have anything to show for it.
There are now hundreds of crowdfunding platforms to choose from. This list from Crowdfunding.com highlights some of the more popular ones.
“Angel investor” is a catch-all term that applies to a private investor, seed investor or anyone with a large amount of capital who’s interested in providing funding to a business, usually in exchange for capital.
Negotiations are made where both parties decide upon how big of an investment there will be and how much equity stake will be given away. Since an angel investor faces a high level of risk, they usually seek a high return on their investment — often 20 to 50% equity.
Therefore, it’s not usually a good move if you’re looking to retain most of your equity. It can, however, be viable if giving up equity justifies the growth of your business.
Going this route offers 2 main advantages. one, you can obtain a large amount of capital, with deals easily reaching six figures. This can ignite business growth and dramatically increase cash flow. You can purchase inventory, hire new employees, buy new equipment and reinvest in your company.
The other benefit is the knowledge and expertise that comes along with an angel investor. Many are entrepreneurs themselves and know what it takes to successfully grow a company. Having them in your corner means you’ve got a valuable partner with a huge incentive to help your business. You may even be able to take advantage of their contacts to open even more doors.
Check out Australia Angel Investors for a comprehensive list of over 1,400 potential investors.
Also known as debtor finance, this is a form of business financing that involves using your outstanding invoices as collateral. You simply upload the invoice you’ve sent to your client, get approval (up to 95% of the value of the invoice, often available within 24 hours) and receive a cash advancement. The remaining money becomes available once the invoice is paid in full.
If slow or late-paying clients are the primary reason for your lack of cash flow, debtor finance is an effective solution.
And many companies enjoy the flexibility that it offers. Debtor finance offers a full range of solutions to accommodate a variety of needs.
There are full service facilities where the lender assumes responsibility for collections and tracks down payments. This works well if you don’t want to be burdened by the distractions of continually following up with slow-paying clients.
There’s also an option for confidential facilities, which are ideal if you have a dedicated finance department and don’t wish to disclose the fact that you’re seeking financing to clients. Everything is still done in-house. You just receive a line of credit.
There’s also Selective Invoice Financing where you only submit invoices you want funding against. You can submit just one invoice or multiple invoices whenever you need. This tends to work well if you only need occasional financing for an injection of working capital. Operating a seasonal company or needing to replace a piece of equipment are good examples.
And unlike secured business loans, you don’t usually need to put up real estate or your vehicle with debtor finance. Your outstanding invoices are all you need.
There are a lot of possibilities for small businesses seeking financing. You can go a more traditional route like business credit cards, grants or secured loans. Or you can take a newer approach like crowdfunding, angel investing or debtor finance.
What’s important is that you find viable financing options that meet your needs and you feel comfortable with. In other words, does it offer the funding you need and have reasonable repayment terms?
Examining each of the options listed above should provide you with the information you need to point you in the right direction.
Do you have personal experience with any of these financing options? Give us a call to discuss these options further on 1300 505 883, or click here for us to get in touch.
Read moreOur Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia’s small to medium sized business sectors showing cashflow issues that many businesses face today, below is the one of six key insights found in our March 2019 report: Over the past six years, the SME Growth Index has repeatedly highlighted that company tax […]
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