Tax terminology explained for business owners
- Simple explanations of the main tax terms
- Relevant to any business type or industry
- Free tax terminology advice
When you engage with a bookkeeper in Sydney or use one of our accountants you get access to a wealth of knowledge and information to help run your business more efficiently, reduce the tax you pay & even help you grow. If you go a step further our business advisory consultation services will help you grow your business well beyond your existing revenues.
Although this all sounds good, but what does all the industry terminology actually mean when it comes to tax and business? Well we explain the most common ones below to help give you some clarity & better understanding. Knowing what these tax terms mean can help structure conversations better, reduce questions and make it easier to work closer with your accountant or bookkeeper.
The top tax terms used in Australia
A request, by the ATO or the taxpayer to relodge their tax return after it has already been lodged, due to a mistake or forgetting to include an item (income, credits, deductions, etc).
Ordinary gross income (salary, wages, income from personal services, property, or from business activities).
A review or examination to verify the accuracy of information provided in tax returns. Audits can be selected at random or deliberately chosen based on red flags.
Australian Business Number (ABN)
An ABN is a unique identifier issued by the ABR (see below) that identifies your business to the government & community. It does not replace your tax file number.
Australian Business Register (ABR)
The ABR manages a record of business data and organisational details to verify business information for the community and the Government.
Australian Securities & Investments Commission (ASIC)
An independent commission of the Australian Government tasked as the national corporate regulator. ASIC’s role is to regulate company and financial services and enforce laws to protect Australian consumers, investors, and creditors. Companies are required to pay an annual fee to ASIC to keep their entities registered and must keep all information updated with ASIC at all times to stay compliant and avoid penalties.
Australian Taxation Office (ATO)
The ATO is the principal revenue collection agency of the Australian Government. They manage the tax and superannuation systems that support and fund services for Australians.
Business Activity Statement
A form submitted to the ATO to report tax obligations for businesses registered for GST. The BAS reports your GST, PAYG instalments, PAYG withholding tax, and other taxes.
When you sell a capital asset (real estate or shares) you can make a capital gain or capital loss. It is the difference between what it cost you to acquire the asset and what you receive when you dispose of it. You need to include this loss or gain in your tax return and pay tax on any capital gains.
A tax deduction lowers the taxpayer’s tax liability by lowering their taxable income. Deductions are usually expenses that the taxpayer has incurred during the tax year that is applied to their gross income to calculate their tax outcome.
Depreciation is what happens when a business asset loses value over time. It represents how much of the asset’s value has been used overtime.
Distribution of profits by a corporation to its shareholders.
Quarterly payments of tax based on the taxpayer’s earned income. It allows business owners & individuals to prepay a certain amount of tax based on income received before the end of the year.
A benefit to an employee, like a payment, but in a different form to salary/wages. i.e. employee able to use a work car for personal purposes, providing an employee with a gym membership, tickets to a concert, or a discounted loan, etc. FBT is separate from income tax and is calculated on the taxable value of the fringe benefit.
The sum of all wages, salaries, profits, rents, interest earnings, and other forms of earnings before deductions or tax.
GST (Goods and Services Tax)
A value-added tax of 10% on goods and services sales, and other items sold or consumed in Australia. You must register for GST if your business has a GST turnover of $75,000 or more.
GST credit is GST you can claim back for something your business has paid for that charged GST. If you are registered for GST, you can claim that back (input tax credits).
Tax paid by the consumer as part of the price for goods or services. The consumer pays more for the product to cover the tax that the entity (usually a producer or retailer) pays to the government.
Instalment Activity Statement
A form submitted to the ATO by taxpayers who are not registered for GST or the medium withholder who prepares quarterly BAS’ but are required to remit their PAYG withholding (PAYGw) tax on a monthly basis.
Tax on luxury goods that are not considered essential.
PAYG (Pay As You Go) Instalments
Regular payments made throughout the year to the ATO to avoid a large tax bill when you lodge your tax return.
PAYGW (Pay As you Go Withholding)
Employers collect tax from the payments they make to employees & contractors and send it to the ATO to help them meet their own income tax liabilities.
Failure to meet a tax obligation can result in a penalty from the ATO. You may receive a penalty for making a false or misleading statement, failing to lodge on time, failing to withhold PAYGw amounts, or failure to meet other tax obligations.
ASIC can also issue penalties for failure to pay an annual fee by the due date or for not advising ASIC of a change and lodging the form outside of the required timeframe.
The difference between an organisations assessable income and deductions.
Taxable income = assessable income – allowable deductions.
The above is only a quick summary of some tax terminology. If you are ever unsure on what something means, please contact us.
Can an accountant help explain tax terminology?
As a business owner in Australia, managing your tax obligations is a critical aspect of running a successful and compliant operation. However, the world of taxation can be complex and overwhelming because it is often filled with jargon and technical terms that might seem daunting to the uninitiated.
Understanding popular tax terms is essential for any business owner to navigate the intricacies of the Australian tax system effectively. There are lots of reasons why gaining a grasp of these terms is crucial and how Fitzpatrick and Robinson, a reputable accounting firm based in Gregory Hills, can be your trusted partner in demystifying tax-related matters.
Compliance and Avoiding Penalties:
Understanding popular tax terms allows business owners to stay compliant with the ever-changing tax laws in Australia. Failure to meet tax obligations or inaccurately reporting financial information can lead to penalties, fines, and even legal repercussions. Being well-informed about key tax terminologies ensures that you provide accurate information in your tax returns and other tax-related documents, mitigating the risk of costly mistakes.
Making Informed Financial Decisions:
Comprehending tax terms empowers business owners to make informed financial decisions. Understanding terms like “deductions,” “capital gains,” “tax credits,” and “fringe benefits” helps you identify opportunities to optimise your tax position. By leveraging legitimate tax-saving strategies, you can minimise your tax liability, retain more profits, and invest in the growth and expansion of your business.
Effective Communication with Tax Professionals:
Clear communication with tax professionals is crucial for seamless tax planning and compliance. When you understand popular tax terms, you can effectively convey your financial situation and business goals to your tax advisors. This, in turn, enables them to provide tailored solutions, maximising tax benefits and ensuring that you take advantage of all available incentives. Fitzpatrick and Robinson’s tax accountants pride themselves on effective communication, ensuring that you fully understand your tax situation and the strategies they recommend.
Monitoring Cash Flow and Budgeting:
Tax terms play a vital role in understanding the tax implications of financial decisions, which directly impacts your business’s cash flow and budgeting. Terms like “PAYG (Pay As You Go) withholding,” “GST (Goods and Services Tax),” and “ATO (Australian Taxation Office)” influence how you manage your finances and allocate resources. With Fitzpatrick and Robinson’s guidance, you can proactively plan your cash flow and budget, accounting for tax obligations and making informed financial projections.
Compliance with Reporting Requirements:
The Australian tax system involves various reporting requirements for businesses. Understanding terms such as “BAS (Business Activity Statement)” and “IAS (Income Activity Statement)” is vital for accurate reporting and timely lodgement. Complying with these obligations ensures that you avoid late lodgement penalties and maintain a positive relationship with tax authorities. Fitzpatrick and Robinson can assist in preparing and lodging your BAS and IAS, keeping you on track with your reporting responsibilities.
Identifying Opportunities for Growth:
Proper understanding of tax terms enables you to recognise opportunities for business growth and expansion. For instance, being familiar with “research and development (R&D) tax incentives” can encourage you to invest in innovative projects that qualify for tax benefits, fostering innovation and growth within your organisation. Fitzpatrick and Robinson can guide you on identifying eligible tax incentives and assist with the necessary documentation to support your claims.
Navigating Tax Deductions and Allowances:
Claiming tax deductions and allowances is crucial for reducing your taxable income and, consequently, your tax liability. Knowing common tax terms like “depreciation,” “expenses,” and “deductible items” empowers you to identify deductible business costs, ensuring you maximise your tax savings. Fitzpatrick and Robinson’s team can help you identify eligible deductions and allowances, optimising your tax position while adhering to tax laws and regulations.
Understanding popular tax terms in Australia is fundamental for any business owner. It ensures compliance, supports sound financial decision-making, and enhances communication with tax professionals. With the complexities of the tax system, enlisting the services of a reputable accounting firm like Fitzpatrick and Robinson in Gregory Hills can be a game-changer. Our expertise, personalised guidance, and dedication to client success make us an invaluable partner in navigating the intricacies of the Australian tax landscape set by the ATO.
Stay informed, stay compliant, and stay successful with Fitzpatrick and Robinson by your side.