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The tax breakdown

Updated: Jan 18, 2023

As an individual or biz I'm sure you are well familiar with paying tax to the taxman-ian devil (aka the ATO), but do you know which tax you are paying and for what? Well, we are here to do the tax breakdance, whoops, we mean breakdown for you.

So let's start with ...


INCOME TAX

This is the tax you pay on income/profits. Your tax rate will depend upon what structure you utilise. If you trade through a company and it's a small biz entity then it's 25%. For any other structure (ex super funds which is 15% if you are not in pension mode), ie partnership or trust the income is distributed and when passed to an individual you will pay tax at the individual marginal tax rates below

This tax is accounted for in your income tax account with the ATO.


So what juicy tax do we have next ... drum roll please

GOODS & SERVICES TAX (GST)

Now this one we can thank John Howard for as his government brought in a 10% tax levied on most goods and services sold or consumed in Australia (yes there are exclusions, you can thank the Greens for that ... long story). In short if your biz is registered for GST you pay 10% on your sales/income and can claim 10% back on your expenses where GST was paid, ie, you pay GST on the net amount. Accounting software like Xero (yes we are Xero Cloud Champions so this is the one we use) will help you to quantify and report your GST.


GST is reported to the ATO each month or quarter through a Business Activity Statement.


The GST is accounted for in your integrated client account with the ATO (yes you have two accounts with the ATO - who knew!)


And just like throwing in that extra set of steak knives, there is more

PAYG AS YOU GO WITHHOLDING (PAYGW)

PAYGW tax is one that an employer collects on behalf of their employees from their wages (helping them to pay their tax as they go).


Employers are required to remit PAYGW either monthly (>$25,000) or quarterly (<$25,000). This is reported on either an Instalment Activity Statement if monthly, or a quarterly Business Activity Statement.


The PAYGW is accounted for in your integrated client account with the ATO (together with the GST).


And the other PAYG tax (What we hear you say? there is another, yes sirree Bob)

It's evil twin brother PAY AS YOU GO INSTALMENTS (PAYGI), hahaha, nah Just Kidding (it's not evil as this isn't Days of our Lives ... or is it??!! 😉😂 or maybe it's just the one that people really really seem to dislike and it's the one we get the most complaints about)


PAYGI are prepayments of income tax, usually paid quarterly, that are based upon the prior years tax payable. You enter the PAYGI system when ...

We have written a whole blog about this one so check it out if you want to find out more https://www.allinadvisory.com.au/post/the-double-whammy-of-tax-ouch. The official line is that it helps us/biz to pay our tax as we go rather than in a hefty lump sum at the end (cos not everyone is as good as you at budgeting and not spending their tax money when they shouldn't 😉)


PAYGI are usually reported quarterly on either a PAYGI notice or Business Activity Statement.


PAYGI are accounted for in your integrated client account with the ATO together with GST and PAYGW.


Now look there are more taxes but let's just keep it the main one's today. I mean we need to write more blogs in the future and to be honest if we kept going you may have lost interest, if you haven't already, haha.


Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice


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