How do I calculate company tax?

Many elements play a part into how much tax your business has to pay such as business income, deductibles, company type etc.  

Who pays company tax? 

Companies that are Australian residents other than those that are considered as a corporate collective investment are subject to Australian income tax on their worldwide income. Non resident companies are also subject to Australian income tax but only on their Australian sourced income. 

The two tax rates

There are two tax rates and they depend on the annual turnover of the company:

30%

The full tax rate– All companies with an annual turnover exceeding $10 million pay the full business tax rate of 30%. Company types that fall under this rate include: 

• Public trading trusts.
• Regular company. 
• Trustees of corporate unit trusts.
• Corporate limited partnerships. 
• Starte title bodies corporate.

27.5%

The lower tax rate– the lower tax rate is 27.5% and is eligible for:

• Small or medium businesses if their annual turnover is less than $10 million. Keep in mind if you operate your business as a sole trader you won’t have to pay taxes on the first $18,200.
• Base rate entities companies that have an aggravated turnover of $50 million from 2018-2019 or $25 million from 2017-2018. Furthermore 80% or less of their income is base rate entity passive income such as interest or rent. 

How to calculate company tax

Company tax is calculated from your assessable income minus deductions.  

              Taxable income= (Business income – Deductions)

Business/Assessable income

Most business income is an assessable income. However, your accounting method may alter which amounts will be included.

What to include in your business’s assessable income

Your business assessable income should include:

• All gross income (before tax): everyday business activities, foreign income, internet sales, income from sales (both cash and electronic). Just remember that gross income doesn’t include the goods and services tax (GST).
• All other business income which isn’t a part of your everyday business activities such as: capital gains, cash prizes, changes in the trading stock value, cryptocurrencies etc. 

What NOT to include in your business’s assessable income

Not all incomes are assessable incomes, you do not need to list them in your tax return. Examples include: 

• GST you’ve collected.
• Borrowed money.
• Betting and gambling wins.
• Hobby earnings.
• Inheritance or gifts.

Deductions 

You can claim tax deductions for expenses that concern your business as long as they link to earning your assessable income 

What you can claim as deductions

For a deduction to be valid they must satisfy three rules:

1. The expense must be for your business only and not for private use.
2. You can only claim the business portion of an expense if it is mixed with business and personal use.
3. You must have proof of these records.

Examples include:

• Home-based business.
• Operating expenses.
• Motor vehicle expenses.
• Business travel expenses.

What you CAN’T claim as deductions

Expenses that are not deductible include:

• Traffic fines. 
• Entertainment expenses. 
• Private or domestic expenses e.g. clothes and food for your family.
• Hobby earnings.
• GST cannot be claimed if you’ve claimed it as credit on you business activity statement.

How to claim your tax deduction 

Claiming your tax deduction depends on your business type:

• Company: Claim in your company tax return. 
• Sole Trader: Claim in your individual tax return using a tax agent or myTax in the “Business and professional” items schedule.
• Partnership: Claim in your partnership tax return. 
• Trust: Claim in your trust tax return.

Conclusion 

Company tax can be calculated through minusing deductions from your assessable income however, it depends on a variety of factors. Including the type of business, what is considered deductible and what is not. It’s important to understand what is needed to calculate your company tax and the variety of factors involved. If you need any assistance or have any enquiries about your company tax return, get in touch with our team via the contact form or by calling 1300 337 997.