The Australian business number (ABN) is a single business identifier that allows businesses to deal with the Australian Taxation Office (ATO) and other government departments and agencies with one identifier.

An ABN is not compulsory and not everyone is entitled to an ABN. The following entities will need an ABN to comply with other tax obligations:

• businesses with GST turnover of $75,000 or more must register for GST and need an ABN to do this
• non-profit organisations with GST turnover of $150,000 or more must register for GST and need an ABN to do this
• entities seeking to be endorsed as a deductible gift recipient need an ABN to obtain that status
• charities seeking exemption from income tax need an ABN.

Other eligible entities may choose to register for an ABN:

• companies registered under the Corporations Law
• business entities carrying on an enterprise
• trustees of self-managed superannuation funds should obtain an ABN for the fund.

If an entity makes supplies of goods or services to a business, the supplier entity generally needs to quote an ABN. If the supplier does not quote an ABN, the payer may need to withhold tax from the payment.

Deductions for the decline in value of depreciating assets are available under the Uniform capital allowance (UCA) system. In addition to the rules for depreciating assets, deductions are allowed for certain other capital expenditure. Small business entities have the option of choosing simplified depreciation rules.

Land, trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.

The decline in value is calculated by spreading the cost of the asset over its effective life, using one of two methods:

• Prime cost method – decline in value each year is calculated as a percentage of the initial cost of the asset
• Diminishing value method – decline in value each year is calculated as a percentage of the opening depreciated value of the asset.

MORE: Australian Taxation Office (ATO) Decline in value calculator.

For most depreciating assets, taxpayers can either self-assess the effective life, or use estimates published by the ATO. Taxpayers can recalculate, either up or down, the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate. An improvement to an asset that increases its cost by 10% or more in a year may result in an obligation to recalculate the effective life of the asset.

Decline in value of cars is restricted to the car limit. Luxury car leases are treated as a notional sale and purchase, with decline in value restricted to the car limit.

The decline in value of certain depreciating assets with a cost or opening adjustable value of less than $1000 can be calculated through a low-value pool. The decline in value for depreciating assets in the pool is calculated at an annual diminishing value rate of 37.5%.

Capital gains tax (CGT) generally applies to CGT events that happen to CGT assets acquired after 19 September 1985. CGT is not a separate tax, it forms part of income tax.

CGT events

The most common CGT event is the disposal of an asset by selling it or giving it away. A full list of CGT events is available here.

CGT assets

A CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include:

• part of, or an interest in, a CGT asset
• goodwill, or an interest In it
• an interest in a partnership asset
• an interest in a partnership, that is not an interest in a partnership asset
• land and buildings
• shares in a company
• units in a unit trust
• options
• debts owed to a taxpayer
• a right to enforce a contractual obligation
• foreign currency.

Where a taxpayer owns an interest in a CGT asset and then acquires a further interest, the interests remain separate CGT assets. Buildings, structures and other capital improvements to land may be treated as separate CGT assets to the land. A car is a CGT asset, but any capital gain made from it is exempt from CGT (the gain may be taxable under other provisions).

Special rules apply to some kinds of CGT assets, including collectables, personal use assets, certain investments, leases and options.

Working out a capital gain or loss

For most CGT events, a capital gain arises if the capital proceeds from the CGT event exceed the cost base of the CGT asset. Conversely, a capital loss arises if the reduced cost base of the CGT asset exceeds the capital proceeds from the CGT event.

The amount of a capital gain is reduced by the CGT discount if the taxpayer is an individual, trust or complying superannuation entity, and the taxpayer acquired the CGT asset at least 12 months before the CGT event. The discount percentage is as follows:

• 50% for Australian resident individuals
• 33 1/3% for complying superannuation entities and eligible life insurance companies
• special rules apply to foreign resident individuals.

Taxpayers can choose the indexation method, rather than the CGT discount, if that results in a lower capital gain. Companies are generally not eligible for the CGT discount, but can use the indexation method. Discount capital gains made by trusts can generally be passed through to presently entitled beneficiaries, who can claim the discount percentage as above. Where the trustee is taxed on a capital gain, the availability of the discount depends on the particular circumstances of the trust.

Capital losses can only be offset against capital gains, they cannot be offset against other income. Care should be taken when applying capital losses to ensure the optimum reduction of capital gains for the CGT discount and small business CGT concessions. A net capital loss in an income year is carried forward to be offset against capital gains in later income years.

Exemptions, rollovers and concessions

A wide range of exemptions and rollovers apply. In addition to the generally available exemptions and rollovers, small business entities are eligible for the small business CGT concessions.

International issues

On or after 12 December 2006, a foreign resident makes capital gains only on the disposal of taxable Australian property. Temporary residents are subject to the same CGT rules as foreign residents, however some specific rulesapply. Special rules apply on becoming a resident or ceasing to be an Australian resident.

Excise duty is a tax on certain types of goods that are made in Australia including alcohol, tobacco, fuel and petroleum products.

Customs duty is imposed at an equal rate on imported alcohol, tobacco, fuel and petroleum products to ensure imported and local goods are treated consistently. These goods are referred to as Excise Equivalent Goods (EEGs).

Entities who manufacture or store excisable goods must hold an appropriate licence.

MORE: See the Excise section of the ATO web site for more information.

Fringe Benefits Tax (FBT) is paid on particular benefits employers provide to their employees or their employees’ associates instead of salary or wages. Benefits can be provided by an employer, an associate of an employer, or a third party by arrangement with an employer. An employee can be a former, current, or future employee.

FBT is separate from income tax and based on the taxable value of the various fringe benefits provided. The rate corresponds to the top marginal income tax rate for individuals, including the Medicare Levy (47% for the FBT year ending 31 March 2015). A complicated gross-up factor is applied in calculating the tax – the general principle is that the FBT payable should equal the income tax otherwise payable by an employee on the top marginal tax rate, on the cash salary needed to purchase the benefit (including GST) from after-tax income.

Reporting, lodging and paying FBT

The FBT year runs from 1 April – 31 March. Annual FBT returns must be lodged and tax paid by 21 May each year. Returns lodged through tax agents may qualify for extended due dates. Annual FBT liabilities of $3,000 or more are paid by quarterly instalments as part of the employer’s business activity statement.

If the taxable value of certain fringe benefits provided to an employee exceeds $2,000 in an FBT year, the ‘grossed-up’ taxable value must be reported on the employee’s payment summary for the corresponding income tax year. The value of reportable fringe benefits is taken into account in income tests for certain taxes and government benefits.

Fringe benefit categories

The following categories of fringe benefits apply, with specific valuation methods applicable to each category:

• Board – meals provided to an employee and family members, where the employer provides accommodation and at least two meals a day
• Car – a car made available for the private use of an employee or associate (car benefits can be valued using either the statutory formula or operating cost methods)
• Car parking – a car parking space provided for use by an employee or associate, on either the employer’s premises or in a commercial car parking station
• Debt waiver – releasing an employee or associate from an obligation to repay a debt
• Income tax exempt body entertainment – FBT is payable by income tax exempt employers on entertainment provided to an employee or associate by way of food, drink or recreation
• Expense payment – paying or reimbursing a private expense incurred by an employee or associate
• Housing – accommodation provided that is an employee’s or associate’s usual place of residence
• Living-away-from-home allowance – a cash allowance paid to compensate an employee for increased costs, because the employee’s duties require them to live away from their usual place of residence
• Loan – a loan provided to an employee or associate either interest-free or at a discounted interest rate
• Meal entertainment – entertainment provided by taxable employers by way of meals to an employee or associate
• Property – goods provided to employees either free or at a discounted price
• Residual – any fringe benefit (as defined) that does not fall into one of the specific categories

MORE: See the ATO web site for more on FBT categories.

Exemptions, concessions and special rules

A wide range of exemptions and reductions in taxable value apply.

Concessional valuation rules apply to ‘in-house’ fringe benefits. Benefits provided as part of a salary packaging arrangement do not qualify for the concessional treatment.

The taxable value of certain fringe benefits can be reduced by employee contributions towards the cost of the benefit. Making such contributions can result in a lower overall tax liability, depending on the particular employee’s tax situation and the valuation method that applies to each benefit received.

Fuel schemes provide credits and grants to reduce the costs of some fuels or provide a benefit to encourage recycling of waste oils. There are various types of schemes:

• Fuel tax credits for business – provides a credit for the excise or customs duty included in the price of fuel used for business activities, in machinery, plant, equipment and heavy vehicles.
• Fuel tax credits – domestic electricity generation and non-profit emergency vessels or vehicles
• Cleaner fuels grants scheme – encourages making or importing fuels that have a lesser impact on the environment. Eligible cleaner fuels include biodiesel and renewable diesel, as well as low or ultra-low sulphur conventional fuels like low sulphur premium unleaded petrol (PULP) and ultra low sulphur diesel (ULSD). Major changes to this scheme are proposed to take effect from 1 July 2015, at the time of publication (October 2014) these changes had not become law.
• Product stewardship for oil (PSO) program – supports recycling oil for environmental sustainability. This includes recycling used oil and using recycled oil.

The former Energy grants credits scheme that applied to alternative fuels and diesel no longer operates for new purchases of fuel.

The General value shifting regime (GVSR) applies to arrangements that shift value between assets, causing discrepancies between the market values and tax values of the assets. Most value shifts happen when parties don’t deal at the market value, causing one asset to decrease while the other increases.

Three scenarios are targeted under the GVSR. Exclusions apply to small values in each of the scenarios, as follows:

• indirect value shifting (exclusion applies if total value shifts under a scheme are less than $150,000)
• direct value shifts on interests (exclusion applies if total value shifted is equal to or less than $50,000)
• direct value shifts by creating rights (exclusion applies if the market value of the right granted exceeds the proceeds for the grant by $50,000 or less).

Generally, the GVSR does not apply to normal commercial dealings conducted at market value, or dealings within consolidated groups. There are several other exclusions and safe harbours in the rules.

The imputation system provides a way for Australian and New Zealand corporate tax entities that pay Australian tax, to pass on to their members a credit for Australian income tax they have paid. This prevents the same income from being taxed twice – once when the income is earned by the entity, and again when the income is distributed to members.

Franking account

The franking account is a record of franking credits and franking debits that arise in an income year. All corporate tax entities are required to maintain a franking account, which is a notional account for tax purposes that is separate to the entity’s financial accounts. Corporate tax entities are taxed at the company income tax rate (currently 30%). Typically a franking credit would arise in the franking account when the corporate tax entity pays income tax or receives a franked distribution. A franking debit would arise when the corporate tax entity pays a franked distribution or receives a refund of income tax it has paid. There are numerous other events that may give rise tofranking credits or franking debits.

At the end of an income year, an entity that has a deficit in its franking account is liable to pay franking deficit tax.

Franked distributions

The imputation system works by franking a distribution. The general principle is that the entity allocates franking credits to members by attaching franking credits to a distribution. For example, the entity earns $100 of profits and pays $30 tax. The entity pays a dividend of $70 to its members and attaches franking credits of $30. The entity is required to give each member a distribution statement which must contain required information about the distribution. A long list of compliance and integrity measures exists to prevent abuse of the system.

Receiving a distribution

The general rule for individuals receiving a franked distribution (either directly, or indirectly through interposed entities) is called the “gross-up and credit” approach. The member who receives the $70 franked dividend must include $100 in assessable income ($70 + $30 franking credit), and is entitled to a tax offset of $30. If the individual’s tax on the dividend (at marginal rates) is more than $30, the individual will need to pay the difference on assessment. If the individual’s tax on the dividend is less than $30, the net amount is refundable.

The “gross-up and credit” approach also applies to corporate tax entities who receive a franked distribution, with some differences. Because the company tax rate is 30%, the $30 franking credit generally cancels out the entity’s tax on the distribution. However, if the entity has offsetting expenses, such that the entity’s overall tax liability is less than $30, the net amount is not refundable. Rather, the excess franking credit is converted to a tax loss that can be deducted against income in later years. As noted above, the franking credit attached to the distribution also creates a franking credit in the recipient entity’s franking account, which it can pass on to its members.

Trans-Tasman imputation

The trans-Tasman imputation system allows a New Zealand company to choose to enter the Australian imputation system. This will allow the New Zealand company to maintain an Australian franking account and pay dividends franked with Australian franking credits. Reciprocal rules have been introduced by the New Zealand government to allow an Australian company to elect into the New Zealand rules.

Income tax is levied on taxable income, which is calculated as assessable income less allowable deductions. Gross tax on taxable income is reduced by tax offsets, to arrive at net tax payable or refundable.

Individuals

The Australian Taxation Office (ATO) publishes lists of assessable income, allowable deductions and tax offsets for individuals. Sole traders declare business income in their individual income tax return, they are not required to complete a separate return for their business. Tax on individuals is charged at marginal rates. You can use the tax tables to determine how much you are taxed.

Resident tax rates 2014-15

The temporary budget repair levy adds an additional 2% tax on that part of an individual’s income above $180,000, for the 2014-15, 2015-16 and 2016-17 income years.

Non-resident tax rates 2014-15

The temporary budget repair levy adds an additional 2% tax on that part of an individual’s income above $180,000, for the 2014-15, 2015-16 and 2016-17 income years.

MORE: See the ATO web site for more information on Individual Income Tax Rates.

Companies

A company is a distinct legal entity with its own income tax liability, and is required to lodge a Company income tax return. The company tax rate is generally 30%. Special rates apply to certain types of companies, or companies in certain industries.

Partnerships

A partnership carrying on a business must complete a Partnership tax return to show all income earned and deductions claimed for the income year, and how the net income or loss was shared between the partners. The partnership itself is not a taxable entity. Rather, each partner includes a share of the partnership’s net income or loss in the partner’s taxable income.

Partnerships where the only income is from joint investments (for example, jointly owned shares or rental properties) are not required to lodge a Partnership income tax return. Rather, each partner’s share of the joint income is declared in the partner’s own tax return.

Trusts

Where a beneficiary (not under a legal disability) is presently entitled to a share of net income of a trust, the trustee is not taxable. Rather, each such beneficiary includes a share of the trust’s net income in the beneficiary’s taxable income. A trust cannot distribute a net loss to the beneficiaries, the loss is carried forward to offset against net income in later years.

Where a presently entitled beneficiary is under a legal disability (for example, under 18 years of age, a non-resident, or incapable of managing his/her own affairs), the trustee is taxable on the beneficiary’s share of the trust’s net income. The tax rates correspond to the tax rates that would otherwise be payable by the beneficiary.

Where no beneficiary is presently entitled to part of the trust’s net income, the trustee is taxable. The tax rates depend on the trust’s particular circumstances, for example income of deceased estates attracts a different tax rate depending on the stage of administration of the estate.

Superannuation funds

A superannuation fund is a distinct legal entity with its own income tax liability and is required to lodge an income tax return. Different income tax return forms are used by self-managed superannuation funds and other superannuation funds. The superannuation fund tax rate is generally 15%. Higher rates apply to net non-arm’s length income, and contributions by or on behalf of a member who has not quoted his/her tax file number to the trustee.

The Medicare Levy is a tax Australian residents pay to cover health care charges. It is payable on taxable income, in addition to income tax. Individuals and families on higher incomes who do not have an appropriate level of private hospital cover may have to pay the Medicare levy surcharge.

For the 2014-15 and later income years, Medicare Levy is usually calculated at 2% of taxable income. A reduction in the rate is available for people on low incomes and an exemption is available for people in certain categories.

A Medicare Levy Calculator is available on the Australian Taxation Office (ATO) web site to help you work out your obligation.

MORE: See the Medicare Levy Essentials section of the ATO web site.

The government-funded Paid Parental Leave scheme provides financial support for parents to take up to 18 weeks off work following the birth or adoption of a child, with pay at the National Minimum Wage. From 1 January 2013 the scheme was expanded to include Dad and Partner Pay, which provides eligible working dads or partners with up to two weeks of pay at the National Minimum Wage.

Employers receive funds from the Department of Human Services and pay eligible employees in the same way they would normally pay salary or wages.

The Australian Taxation Office (ATO) provides a variety of rate tables, tax calculators, and other tools on many topics, including the following:

• capital gains tax
• fringe benefits tax
• fuel tax credits
• goods and services tax
• income tax
• PAYG withholding
• superannuation

MORE: To access these tools, navigate to the Calculators & Tools section of the ATO web site.

Small businesses with an annual turnover of less than $2 million may qualify for a range of tax concessions. If your business is eligible you can use the concessions that suit you. You may have to satisfy additional conditions and will need to check whether you qualify for the concessions each tax year.

Eligible businesses can use the concessions outlined in the table.

MORE: For more information, see the Small business entity concessions essentials section of the ATO web site.

Payroll tax

Payroll tax is a state tax on the wages paid by employers when the total wages exemption threshold is exceeded. Exemption thresholds vary between states. The definition of wages generally includes employer superannuation contributions and fringe benefits, although the definition also varies between states.

NOTE: Payroll tax is not the same as PAYG withholding tax collected by the Australian Taxation Office (ATO). PAYG is the tax deducted from an employee’s income and forwarded to the ATO.

The following organisations are generally exempt from payroll tax, provided specific qualifying conditions are met:

• Religious institutions
• Public benevolent institutions
• Public or non-profit hospitals
• Non-profit non-government schools
• Charitable organisations

Land tax

All landowners, except those in the Northern Territory, may be liable for land tax. In the Australian Capital Territory land tax is levied on lessees under a Crown lease, because land generally cannot be acquired under freehold title. Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds (excluding the ACT).

In some states, deductions and rebates are available, depending on how the land is used. Principal places of residence are generally exempt from land tax, however this depends on particular qualifying criteria (these vary between jurisdictions).

Land owned and used by the following types of organisations might be exempt from land tax:

• Non-profit societies
• Clubs and associations
• Religious institutions
• Public benevolent institutions
• Charitable institutions

Stamp duty

Stamp duty is levied on particular written documents and transactions, including:

• Motor vehicle registrations and transfers
• Insurance policies
• Leases
• Mortgages
• Hire purchase agreements
• Property transfers (e.g. transfer of businesses, real estate, and particular shares)

The stamp duty rate varies according to the type of transaction and its value. Depending on the nature of the transaction, certain concessions and exemptions may be available.

State tax web sites

Particular deductions and exemptions vary between states for all duties. For additional state-specific information, visit the applicable state web site:

• New South Wales Office of State Revenue
• Revenue SA
• Queensland Office of State Revenue
• Territory Revenue Office
• ACT Revenue Office
• State Revenue Office Tasmania
• State Revenue Office Victoria
• Office of State Revenue Western Australia

In addition to employees’ salaries and wages, employers are required to pay superannuation contributions on behalf of all eligible employees. This compulsory contribution is called the superannuation guarantee. The definition of employee for this purpose includes certain contractors. The minimum contribution from 1 July 2014 is 9.5% of each eligible employee’s earnings base (usually their ordinary time earnings) and must be paid within 28 days after the end of each calendar quarter. Employers must also provide employees with a choice of superannuation fund.

The minimum contribution rate will remain at 9.5% until 30 June 2021. After that date, the rate will increase by 0.5% each financial year until it reaches 12% from 1 July 2025.

Employers are generally required to pay superannuation contributions for employees if they are:

• over the age of 18 (no upper age limit applies)
• paid $450 or more (before tax) in a calendar month.

If an employer fails to make the minimum contributions for a quarter by the due date, the employer is liable for the Superannuation Guarantee Charge (SGC). The SGC comprises the unpaid contributions calculated on a higher earnings base, plus an interest charge (which is credited to the employee’s superannuation account) and an administration fee. The employer cannot claim an income tax deduction for the SGC.

The Australian Taxation Office (ATO) provides the following tools to help you understand and meet your obligations:

• Superannuation Guarantee Charge (SGC) statement and calculator – calculate the SGC liability and prepare the SGC statement.
• Employee/contractor decision tool – determine whether new or existing workers are contractors or employees (for tax and super purposes)
• Superannuation guarantee eligibility decision tool – see whether an employer needs to make super contributions for employees
• Superannuation guarantee contributions calculator – calculate how much super an employee should be contributing for eligible workers.

Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid these charges, ensure you pay the full amount of tax you owe by the due date.

The main charges for failing to meet tax obligations are the:

• General interest charge (GIC) – applies to a variety of situations, whenever amounts owing to the Australian Taxation Office (ATO) are paid after the due date.
• Shortfall interest charge (SIC) –  applies to a variety of situations where a tax liability is increased in an amended assessment
• Failure to lodge on time penalty (FTL) – administrative penalty which may be applied if a taxpayer fails to lodge a return, statement, notice, or another document with the ATO by the due date.

Additional penalties include failing to:

• Keep or retain required records
• Retain or produce required declarations
• Provide access and reasonable facilities to an authorised tax officer
• Apply for or cancel GST registration when required
• Issue a required tax invoice or adjustment note
• Register as a PAYG withholder when required
• Lodge a required activity statement electronically
• Pay a required amount electronically

If a taxpayer is audited and an amended assessment is raised, further penalties of up to 75% of the additional tax levied may be applied, depending on the severity of the offence. Examples include making a false or misleading statement, not taking reasonable care, or taking a position that is not reasonably arguable in a tax return or other document.

Wine Equalisation Tax (WET) is a tax on wine levied at 29% of the taxable value of wine. The taxing point is the last wholesale sale, or a retail sale or application for own use (e.g. tastings) when there is no wholesale sale. The taxable value is the actual sale price (excluding WET and GST) for wholesale sales, or a notional equivalent value in the other situations.

WET affects wine manufacturers, wholesalers, and importers. Retailers do not have a WET liability unless they make their own wholesale wine. WET is paid as part of the entity’s activity statement, the tax period is the same as the entity’s tax period for GST (which may be monthly, quarterly or annually).

The producer rebate scheme entitles wine producers to a rebate of WET for up to $500,000 of domestic sales each financial year. There is a modified producer rebate scheme for New Zealand wine producers.

Generally, WET is included in the price that retailers such as bottle shops and restaurants pay when purchasing wine. The retailer is not entitled to claim back the cost of the WET, as the WET is built into the price the retailer pays and then passed on to the consumer.

WET applies to the following alcoholic beverages:

• grape wine (including sparkling and fortified wine, marsala, vermouth, wine cocktails, and creams)
• other fruit wines and vegetable wines (including fortified fruit and vegetable wines)
• cider and perry
• mead (including fortified mead) and sake

MORE: See the ATO web site for more information on Wine Equalisation Tax and for instructions on filling out the WET section of the Activity Statement.