business tax activity 1 ears 7-10 what is a business?€¦ · features of business structures and...

Tax, Super+You. Take Control.

Business Tax Activity 1

Find out about the importance of preparing a business plan.

WHAT IS ABUSINESS?

The materials in Business tax have been designed to be used

in a variety of ways. Each topic is designed as a stand-alone

section to be explored by a whole class, small groups or

individual students.

BUSINESS FACTSA business is any activity where goods or services are sold with the intention of making a profit. The business calculates profit by deducting expenses from the income earned by the business. The profit earned from these activities is taxed.

A business can be set up using one of a number of legal structures, for example, sole trader, partnership, company and trust.

If an activity has not been set up with the aim of making a profit, it is considered to be a hobby. Unlike a business, money received from a hobby is not taxed, and the expenses incurred cannot be claimed as deductions.

The following example demonstrates the distinction between businesses and hobbies.

Fact sheet

PREPARING A BUSINESS PLANBefore you start operating a business, you should write a business plan. This plan sets out:

� the aims of the business, its structure and how, where and when it will operate

� a marketing plan including objectives, target market, competition, competitive advantage, pricing strategies and how the product will be distributed

� an industry analysis including current size, trends and prospects for the industry

� a financial plan including cash budgets, budgeted profit and loss statements and a budgeted balance sheet

� information about the tax obligations and responsibilities of your business.

The website business.gov.au has more information about business planning.

One of your most important decisions when starting a business is selecting the business structure that best suits your needs. Features of business structures and their tax implications are considered in Business structures. It is a good idea to seek legal or other professional advice about your particular circumstances before deciding on a specific structure.

A business needs to register with the ATO so that it can meet its tax obligations. Understanding how much and when taxes are due can assist a business to meet its legal obligations and prevent late payment penalties. Business taxes are explained in Activity 3: Running a business: Tax obligations.

Madison loves horse riding. She decides that

she will set up a horse riding school to teach

young people how to ride. This will be her

main occupation, so it will be considered a

business. She will be taxed on the income

earned and can claim the allowable expenses

of running the business.

However, if Madison has a regular job as a

bank teller and only teaches horse riding

at weekends for a friend’s children, this is

regarded as a hobby. This means any money

she gets from the lessons is not regarded as

assessable income and is not subject to tax.

She is also unable to claim any of the related

expenses as tax deductions.

Years 7-10

Activity 1: Fact sheet


YOU WILL: � collaborate to identify the main components of a business

plan and their importance to business success � identify and categorise examples of poor planning � explain the statement ‘Businesses don’t plan to fail, they fail

to plan’

YOU WILL NEED: � Fact sheet: What is a business? � Answer Sheet: Task 1 – Why go to the trouble?

TASK 1WHY GO TO THE TROUBLE?Business Tax Activity 1: What is a business?

Worksheet

Years 7-10

What is a business plan?A business plan is a written document that describes in detail how a business, usually a new one, will achieve its short-term and long-term goals. It is a written plan that typically identifies strategies on how key elements of the business will contribute to the business goals.

Creating a business plan: the benefitsLawyers, accountants, financial planners and the ATO all stress the importance of planning. The result of any application for finance or loans will depend on close scrutiny of the business plan. Planning is also a key contributor to business success.

COLLABORATIVELY GENERATE IDEAS AND SOLUTIONS1. Read the Fact sheet: What is a business

2. In groups, brainstorm:

� decisions you will need to make in relation to key aspects of the business (use what you already KNOW as well as information provided in the fact sheet)

� how these decisions will improve the success of the business � problems these decisions might prevent.

3. Record the group’s ideas on a large piece of paper, such as butcher’s paper.

4. Share ideas with the rest of the class.

5. Display your group’s ideas around the classroom along with the ideas of other groups.

Aspects of the business Decisions that will need to be made

How will these decisions improve the success of

the business?What problems might

these decisions prevent?

Business aims, structure and how it will operate

Marketing and promotion

Features of the industry

Financial plan

Tax obligations and responsibilities.

Activity 1: Task 1


DEVELOP AN EVIDENCE-BASED ARGUMENT

ScenarioJo and Sam decided to quit their jobs and start a business selling imported jewellery. They knew where to go to buy cheap jewellery and there seemed to be a market for jewellery in their local suburb – there were four other stores that seemed to be always busy.

They travelled overseas and used most of their savings to buy jewellery to sell. They leased a small shop at the local shopping centre and used the rest of their savings to pay three-months’ rent in advance. They thought they were ready. They had stock to sell, a space to sell from and someone to sell the stock (themselves) and one casual employee. They were now excited about starting their business.

However, the stock they ordered from overseas was delayed for two-weeks. When they went to clear the stock from customs, they had to pay import duties and GST– they hadn’t budgeted for this and had to borrow money from their parents as they had used all their savings and were now two weeks without any pay. When they opened their doors for business, they made enough sales to pay wages for their casual staff member and themselves and to replace their stock. But the sales weren’t as high as they expected and some customers complained that their prices were too high compared with other stores in the area.

Three-months passed and Jo and Sam received an invoice for the rent. They also received a business activity statement (BAS) from the ATO to complete. When they completed the BAS, they realised they owed pay as you go tax (PAYG) on wages and GST on sales. As they had spent their money on buying stock, they decided to have a sale offering up to 50% off the marked price of ALL stock.

6. For each aspect of the business, identify at least ONE mistake that Jo and Sam made in establishing and running their business.

Aspects of the business Mistakes

Business aims, structure and how it will operate

Marketing and promotion

Features of the industry

Financial plan

Tax obligations and responsibilities.

7. Explain the statement ‘Businesses don’t plan to fail, they fail to plan’. If possible, use evidence from Jo and Sam’s experience.

Activity 1: Task 1



BUSINESS STRUCTURES

Years 7-10

Fact sheet

Businesses are set up with differing structures. What are the advantages and

disadvantages of each structure? Why does it matter? Explore some of the

activities associated with starting up a business.

DIFFERENT BUSINESS STRUCTURESThere are different ways to set up a business, each with its benefits and drawbacks. The business structure chosen will affect the way tax is calculated and the amount of tax paid on the business profits.

There are four main types of business structure.

Sole traderA sole trader is a person who owns and runs a business as an individual. They may employ other people, but the sole trader owns and makes decisions for the business.

There is no separate legal identity for a business owned by a sole trader. The business profit is treated as the personal income of the sole trader and must be included in the owner's income tax return. The sole trader is taxed at personal income tax rates.

A sole trader has a limited life and unlimited liability for debts as there is no legal distinction between private and business assets.

Partnership A partnership is two or more persons who operate a business with the aim of making a profit or receiving income jointly. A partnership has limited life, and the business has no separate legal identity with any profits split equally between the partners, or as laid down in the partnership agreement. Net income (profits) must be included on the individual tax returns of each of the partners and are taxed at each partners marginal tax rate.

There must be a partnership tax file number and the business must lodge a partnership tax return showing how the net income or loss was distributed among the partners.

Companies and trustees can also be partners in partnerships.

Any losses from trading in a partnership are also split among the

partners, but these can be offset against other income.

Partners in a partnership have unlimited liability, they are responsible for the debts of the business, even where they were not the person who directly caused the debt.

CompanyA company has a separate legal identity distinct from its shareholders, and is incorporated in its own name. The capital of the company is contributed by a number of people, called shareholders. If you buy a share in a business, you become a shareholder and thus a part-owner of the business. You are then entitled to a share of the company’s distribution (profits), which is also known as a dividend.

Shareholders are generally not liable for the debts of the business because the company structure gives shareholders protection from having to pay for the debts of the company. This is called limited liability. The company directors, whether they are shareholders or not, can in some cases be liable for the debts of the company.

A company has unlimited life, meaning that a company will operate forever unless it is formally dissolved.

Public companies are generally listed on the Australian Securities Exchange and have many shareholders. The reporting requirements of public companies are very strict because they are able to obtain capital (funds) from the general public. Private companies are not listed on the Australian Securities Exchange.



A company must have its own tax file number and lodge its own tax return. Companies differ from individual taxpayers as they incur a flat rate of tax on the company’s taxable income, regardless of the company’s income level. Companies do not have a tax-free threshold and tax is payable from the first dollar of taxable income.

TrustA trust is an obligation on a person (or a company), known as the trustee, to operate a business and hold property or assets on behalf of certain people who benefit from the trust. These people are called the beneficiaries. The primary role of trusts is asset protection. However, they also have a significant role to play in taxation.

There are two common types of trusts: discretionary trusts and unit trusts.

In a discretionary trust, the trustee has the power to decide how the profit will be distributed among the beneficiaries. Family trusts are usually discretionary trusts.

In a unit trust, the profit is distributed according to the number of units held by the beneficiaries.

A trust must lodge a tax return, although in general a trust does not pay tax. The beneficiaries who receive a distribution from the trust pay tax on their distribution. The profits can be distributed in a variety of ways to legally minimise the amount of tax paid. This is one of the main reasons many family businesses are established as trusts.

Trusts are an extremely complex area of law, as there are many different types of trusts with different methods of distributing profits. This material on trusts is very general and only deals with the most common types.

TAXATION AND DIFFERENT BUSINESS STRUCTURES

Sole traderThe profit from a sole trader business is taxed at personal income rates (Table 1). This means there is only one amount of tax-free threshold ($18,200) and no opportunity for the owner to distribute any of the income to any other party. Sole traders must also pay the Medicare levy (2%).

PartnershipProfits are split among the partners and will be taxed at each partner’s personal income tax rate (Table 1). Husbands, wives or family members may go into partnership to get lower tax rates if they split the income. There are special tests under the tax law to ensure they are really partners in business, and are not just using the structure to avoid tax. Each partner must also pay the Medicare levy (2%).

Table 1: Resident tax rates 2018-2019Taxable income Tax on this income

0 – $18,200 Nil$18,201 – $37,000 19c for each $1 over $18,200$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000$180,001 and over $54,097 plus 45c for each $1 over $180,000



CompanyCompanies lodge their own tax return and pay tax on their taxable income (assessable income less allowable deductions). Companies with a turnover of less than $25 million pay income tax at a flat rate of 27.5%. Turnover of $25 million and above is taxed at 30%. A company does not have to pay the Medicare levy.

A company’s distribution to shareholders can be as fully franked, partly franked or unfranked dividends. If company tax has been paid on the company’s distribution to shareholders, the dividend is said to be 'franked' and a franking credit is associated with the dividend. Franked dividends can be either fully franked (the whole dividend carries a franking credit) or partly franked (only part of the dividend carries a franking credit). An unfranked dividend has no franking credits.

TrustsTrusts generally distribute their profits to beneficiaries who will pay tax at their own personal income tax rate, including the higher rates for children aged less than 18 years.

Find out about how different structures affect tax by reading the scenario to the right.

ScenarioMax and Hanna, both aged 26, run a business that has an assessable income of $200,000 for the financial year. They have spent $60,000 in allowable deductions. They are married and they do not pay the Medicare levy surcharge as they have private health insurance. The following table shows how much tax they would have to pay under the different business structures. Trust tax rates are not included, as there are many different types of trusts and they are a complex area of law.

Table 2: Tax payable for different business structures

Business structure Taxable income Total tax payable

Sole trader Hanna operates the business as a sole trader

$140,000 $42,097 which includes Medicare levy of $2,800

PartnershipHanna and Max share the profits equally

$70,000 for each partner $15,697 for each partner which includes Medicare levy of $1,400 for each partnerTotal tax: $31,394

CompanyHanna and Max receive no salaries and the profits are not distributed

$140,000 $38,500Company tax is 27.5% on profit.No Medicare levy

Company paying salariesHanna and Max each receive $38,000 as director’s fees (salaries) and the profits are not distributed9.5% super guarantee payments must also be made as they are both directors of the company.

$64,000Assessable income of $200,000 less allowable deductions of $60,000 and salaries of $76,000

Company tax on profit at a rate of 27.5% is $17,600Personal tax on $38,000 each is $3,897, plus Medicare levy of $760 = $4,657x2 = $9,3149.5% super guarantee payments of $3610 x2 = $7,220Total tax and super (Personal and company) = $34,134

Remember that tax is only one

of many considerations when choosing a business

structure.It is recommended that you

obtain professional advice from an accountant or lawyer before

deciding on a business structure.



TASK 1 FEATURES OF A BUSINESS STRUCTUREBusiness Tax Activity 2: Business structures

Worksheet

Years 7-10

YOU WILL: � test your knowledge about the features of different business

structures � calculate the tax payable for different business structures

and scenarios � decide on the most appropriate business structure based

on tax implications � develop evidence-based advice on the most suitable

business structure taking into account a range of criteria

YOU WILL NEED: � Fact sheet: Business structures � Answer Sheet: Task 1- Features of a business structure

TEST YOUR KNOWLEDGE1. Complete the paragraphs by using the terms from the list provided. A term may be used more than once and all terms should

be used at least once.

losses partnership company agreement

shareholders unlimited liability dividends regulation

trustee profit decision making beneficiaries

capital sole trader knowledge and skills workload

A ……….......…… business structure is an individual running a business. One advantage of this business structure is that any

……………...does not have to be shared with anyone else. On the other hand, there is usually only one person able to contribute

…………… to the business and be responsible for important ……………........ A ……………........ is a business owned by two or more

people. When people decide to form one of these, they should prepare a written ………….......… which sets out the important features

such as the aims, ……........……… contributed, sharing of …………….......and ……………............... and how decisions will be made. A

major advantage of this business structure is that partners contribute different ……………............. to the business and can share the

…………….............. Both a sole trader and a partnership structure have …………….............. for the debts of the business.

A ……………............. is established as a separate legal entity which can make contracts in its own name. The owners of this business

are known as …………..............… They usually receive …………..............… when the business makes a ………….............… They are

subject to greater ………............…… than sole traders. A trust is a business structure where a …………............… is responsible for

managing property for the benefit of one or more people, known as ……............………

2. Calculate tax payable for each business structure (Table 1) to investigate the tax implications of changing from a sole trader format. Remember to include the Medicare levy of 2 percent where applicable.

Activity 2: Task 1


APPLY YOUR KNOWLEDGE

Scenario 1Jen and Jed have a business making and selling outdoor tables. The assessable income of the business for this financial year was $145,000, with allowable deductions of $40,000. At present, Jed owns the business and runs it as a sole trader, and Jen keeps the accounts for the business. Calculate what the tax payable would be if Jed uses a different business structure?

Table 1: Calculating tax 1Business structure Calculations

Sole trader (All 'profits' included on Jed's personal tax return and assume no other income or deductions for Jed)

Tax payable

Partnership ('Profits' divided evenly between Jen and Jed. Assume no other income or deductions for Jen or Jed)

Tax payable

Company (No salaries to Jen or Jed. Assume a 27.5% company tax rate)

Tax payable

Company with director’s fees ($30,000 paid to both Jen and Jed. Assume a 27.5% company tax rate)

Tax payable

3. Based on tax implications, which business structure would you advise Jed to use for his business?

Scenario 2Jed wanted to increase the profits of his business by at least 50% and developed a business plan to achieve this objective. This involved rethinking the what, how and for whom he produces.

Jed implemented his business plan and the assessable income of the business for the financial year was $290,000, with allowable deductions of $60,000.

Jed’s business plan resulted in more profit. This might have implications for the business structure Jed chooses.

Help Jed decide:

4. Calculate tax payable for each business structure (Table 2) to investigate the tax implications of different business structures given Jed’s most recent figures ($290,000, with allowable deductions of $60,000). Remember to include the Medicare levy of 2 percent where applicable.

Activity 2: Task 1


Table 2: Calculating tax 2Business structure Calculations

Sole trader (All 'profits' included on Jed's personal tax return and assume no other income or deductions for Jed)

Tax payable

Partnership ('Profits' divided evenly between Jen and Jed. Assume no other income or deductions for Jen or Jed)

Tax payable

Company (No salaries to Jen or Jed. Assume a 27.5% company tax rate)

Tax payable

Company with directors’ fees ($30,000 paid to both Jen and Jed. Assume a 27.5% company tax rate)

Tax payable

5. How does increased profit affect the tax implications of the business structure selected?

6. Based on tax implications, which is the best business structure for Jed now?

MAKE AN INFORMED DECISION

Jed decides that he will choose a business structure based on tax implications only. Should saving money be Jed’s only consideration?

7. Read the advantages and disadvantages of each business structure in Table 3.

Activity 2: Task 1


Table 3: Advantages and disadvantages of different business structuresBusiness structure Advantages Disadvantages

Sole trader

� has fewer formalities and costs in setting up the business

� has full control of the business � receives the full benefit of profits made by the

business � keeps all of the after-tax gains if the business

is sold.

� has a limited life span, as it will cease to exist when the owner dies

� has limited access to capital and no one to share any losses with

� is legally responsible for all aspects of the business – which means the sole trader can lose all their private assets if the business goes into debt.

Partnership

� fewer set-up costs � greater access to finance, because more

people are involved � more people to share the workload � more people to share any losses and legal

responsibilities.

� net income (profits) or losses must be split between the partners, giving less to each person

� a limited life span, as the partnership ends when any one of the partners leaves or dies

� all partners are responsible for the debts of the partnership

� partners can lose private assets if these are needed to pay off the debts of the partnership.

Company

� has far greater access to capital (funds) for the running of the business

� shareholders are not liable for the debts of the company

� is its own separate legal entity; as shares can be traded or transferred, a company can potentially have an indefinite lifespan

� generally, pays a lower rate of income tax than individuals, meaning tax overall may be less.

� is more expensive to establish � has greater reporting requirements than a sole

trader or partnership � limits the shareholders' say in the running

of the company; they can only vote for the directors who control the company.

Trust

� provides the opportunity to minimise tax through the distribution of net income to beneficiaries

� has limited liability if the trustee is a company � has perpetual existence and does not cease

with the death of a beneficiary � can provide increased asset protection.

� is more expensive to establish � has higher compliance costs, such as regular

legal and accounting expenses � can distribute profits to children under the age

of 18, who may be taxed at a high rate � has beneficiaries who can have complex

PAYG instalment calculations.

8. Develop criteria that will enable you to evaluate the relative costs and benefits of each type of business (examples include establishment costs, tax implications)

Advantages and

disadvantages of each alternative

Develop criteria by

which each alternative

can be judged

Evaluate each alternative in relation to criteria to decide on the best option

Activity 2: Task 1


Criteria for selecting business structure

¤

Sole trader Partnership Company Trust

Establishment costs

Tax implications

Use the legend below for evaluating each business structure against each criterion you identified in Table 4.

Highly suitable option Somewhat suitable option Not a very suitable option

PP P O9. Develop advice on the most suitable business structure for Jed based on the criteria.

When writing your advice, remember to use PEER to structure your paragraph.

Advice about the most suitable option

Point State your proposed option (one sentence)

Elaboration Explain in a little more detail why you chose this option (one or two sentences)

Evidence/Example Discuss the advantages and disadvantages of your proposed option in detailExplain why the other options were less suitable(several sentences)

Relate Restate your proposed option (one sentence)

Activity 2: Task 1

Table 4: Decision-making matrix


TASK 2 STARTING A BUSINESSBusiness Tax Activity 2: Business structures

Worksheet

Years 7-10

YOU WILL: � use a SWOT analysis and a PMI to make an informed

decision on a business to start � justify your decision using evidence from your analysis � select an appropriate business name and design a business

logo � justify your choice of language and design � use your existing knowledge to select and justify an

appropriate business structure

YOU WILL NEED: � Fact sheet: Business structures

For some time, your ambition has been to start and run a business in your local area. You have worked in a variety of businesses over the last eight years, as an employee and as a manager, to gain knowledge and experience in a variety of retail businesses. You and your partner have built up savings and a recent inheritance has ensured you now have sufficient funds to follow your dream. Your partner enjoys working as a teacher and so is going to continue teaching, which will provide money to live on while you concentrate on developing the business. You expect you will need to hire staff, at least one person full-time as well as some part-time staff.

After surveying the local business area, you have shortlisted the following opportunities for a retail business:

Option 1A mobile DJ business, specialising in school functions and parties

Option 3Babywear shop selling organic and chemical-free baby wear and supplies

Option 4Leisure clothing aimed at young adults who want something a bit different

Option 2Sporting equipment marketed at individuals who can afford to pay for unique and specially designed gear

MAKE AN INFORMED DECISIONA useful tool for making informed business decisions is a SWOT analysis. A SWOT analysis is a decision-making tool which requires an examination of the Strengths, Weaknesses, Opportunities and Threats for alternative options.

Strengths and weaknesses refer to the internal factors that can be identified and controlled; the opportunities and threats refer to the external factors that cannot be controlled. The structure of a SWOT analysis is provided below.

Positive Negative

Internal Strengths Weaknesses

External Opportunities Threats

Activity 2: Task 2


1. Identify and record the Strengths, Weaknesses, Opportunities and Threats for one of the four business options. Repeat this process on a new table for at least TWO of the other business options.

SWOT ANALYSISSelected option number: _____

_____________________________________________

Objective: To start a successful business

Strengths Indicate your individual strengths that will contribute to this particular business

Weaknesses Identify any shortcomings that may impact on the success of this business

Opportunities (external, positive factors) E.g.: a market for the product or service exists in the area

Threats (external, positive factors) E.g.: Competitors

2. Evaluate the business options using the PMI chart in Table 2. To do this, identify from the SWOT analyses what is positive, negative and interesting for each of the business options. Allocate 1 point to every positive, -1 to every minus and 0.5 to every interesting point. Total up points for quick view to compare.

Table 2: PMI chartBusiness option Plus Minus Interesting Total points

DJ business

Points

Babywear shop

Points

Sporting gear shop

Points

Leisure wear shop

Points

Activity 2: Task 2


3. Decide on the business option that best satisfies the objective of starting a successful business. Justify your decision with evidence from the PMI chart. Use PEER to structure your response.

Advice about the most-suitable option

Point State your proposed option (one sentence)

Elaboration Explain in a little more detail why you chose this option (one or two sentences)

Evidence/Example Discuss the advantages and disadvantages of your proposed option in detail. Explain why the other options were less suitable (several sentences)

Relate Restate your proposed option (one sentence)

Now that you have selected a business, complete the following:

4. Decide on an appropriate name for your business. Choose a name that gives a clear, positive message to potential customers about what your business provides. Design a suitable logo.

BUSINESS NAME:LOGO:

An evidence-based conclusion is a conclusion that is based on research and analysis of data and information

Activity 2: Task 2


5. Explain the choices you made when selecting a business name and designing a logo in terms of how your choices (use of language, colours, design) meet purpose and audience.

6. Select the 'right' business structure for your business. Give reasons for your choice. Explain and clearly identify the tax implications of your choice.

TASKbusiness name and

logo

Purposeto

persuade

AUDIENCEpotential customers

Activity 2: Task 2



RUNNING A BUSINESS:TAX OBLIGATIONS

Years 7-10

WHAT DO BUSINESS OWNERS NEED TO KNOW AND DO ABOUT TAX AND SUPER?

FIND OUT MORE ABOUT HOW TO SET UP A BUSINESS.

Fact sheet

RUNNING YOUR BUSINESSWhen you go into business, it is important to understand your tax obligations. You may be liable for various Australian, state or territory, and local government taxes depending on the size and location of your business.

Apply for a TFN and an ABNCompanies, trusts and partnerships need to register for a tax file

number (TFN), which is a unique nine-digit number issued by the ATO

to individuals and other entities. Sole traders do not need a separate

TFN for their business, they use their existing individual TFN. The

procedures for registration vary according to the business structure

adopted.

It is also usual to register your business for an Australian business

number (ABN), a unique 11-digit number used when dealing with other

businesses and government departments and agencies. You should

include your ABN on all business documents and invoices. A business

with revenue from certain sales above $75,000 a year must register for

the goods and services tax (GST), which requires an ABN. If you don’t

have an ABN, other businesses may be required to withhold ‘No ABN

withholding’ from any payment made to you.

(The top tax rate including Medicare levy is 47%; the No ABN

withholding rate is also 47%).

Why do you need an ABN?Your ABN allows you to:

� complete a business activity statement, report your GST and claim

GST credits, if you are registered for GST

� confirm your business identity to other businesses and people

when ordering and invoicing � claim energy grants credits � obtain an Australian internet domain name.

1

iActivity 3: Fact sheet


Register for tax paymentsYou need to register your business with the

ATO for any tax that applies to the operations

of the business. Generally speaking, this will

include registering for GST, fringe benefits tax

(FBT) and pay as you go (PAYG) withholding.

These taxes are described further in

Explaining business taxes and The goods and

services tax (GST).2

Register for PAYG withholdingIf your business has employees, you are required to withhold tax from wages and salaries paid

to them. Your business must forward the withheld tax money to the ATO at regular intervals. The

ATO produces schedules for employers to help them calculate the right amount to withhold from

employees' wages. Employees are required to complete a tax file number declaration form before they

start to receive payments from a new employer. If they do not complete the form within 28 days of

starting employment, they will be taxed at a rate of 47%.

The amount deducted will vary according to whether the employee claims the tax-free threshold

and any tax offsets, and has any existing Higher Education Loan program (HELP) debts. The ATO

document How to complete the PAYG payment summary explains how to fill out a PAYG payment

summary for each employee.

At the end of the financial year, a business must issue a payment summary to each employee who has

had tax withheld. The summary must list information about gross payments, tax withheld (tax credits),

reportable fringe benefits amount, superannuation and other deductions.

The ATO credits employees for the amount of tax that is sent on their behalf by their employer. When

an employee lodges their tax return, the ATO calculates the amount of tax payable on their taxable

income. If the employee has paid more tax than necessary, the excess tax will be refunded to them. If

the tax already collected by the ATO is less than the amount of tax payable, the employee must pay

the extra amount.

i

Your super obligationsWhat is super? Super (superannuation) is a form of saving which provides people with an income after retirement from work. Under the super guarantee scheme, most employees are entitled to a compulsory super contribution from their employers. As an employer, you need to pay super guarantee contributions for eligible employees and certain contractors. You must contribute, on at least a quarterly basis, a minimum amount equal to a set percentage of the employee’s ordinary time earnings (9.5%) into a complying super fund or a retirement savings account (RSA). The following table show the due dates for super payments:

i

i

All businesses need to register for a tax file

number.



Quarterly payment due dates for super payments

Quarter Period Payment due date

1 1 July – 30 September 28 October

2 1 October – 31 December 28 January

3 1 January – 31 March 28 April

4 1 April – 30 June 28 July

Generally, the earning base is what the employee earns for ordinary hours of

work. Some employers pay more than the required amount, but those extra

amounts are voluntary. Eligible employees usually have a choice of which super

fund they belong to. Employers must provide eligible employees with a standard

choice form (or equivalent) within 28 days of their start date.

Certain groups of employees are not entitled to super contributions from their

employers. This includes those who earn less than $450 in a calendar month,

those who are under 18 years of age and work 30 hours or less in a week, and

those who provide work of a private or domestic nature for 30 hours or less a

week (for example, part-time nannies and housekeepers).

The module on Super provides more detailed explanation of superannuation.

Calculate income tax for a businessThe tax equation for a business is similar to that for an individual. The business must calculate its taxable income. The process broadly follows these steps:

Calculate:

Assessable income

Subtract

Allowable deductions

Equals

Taxable income

Work out

Tax on taxable income

Subtract

Tax credits/offsets/rebates

Equals

Net amount payable/refund**

** The amount of tax payable/refund due will depend on whether the business is a

sole trader, partnership, company or trust.

Payment of other business taxes is considered in Explaining business taxes and The goods and services tax (GST).

i

iWhen you cease or sell a businessA business must tell the ATO when it has ceased trading or has been sold. The business needs to cancel its ABN and GST registration. Before cancelling an ABN, a business needs to ensure it has met all lodgment, reporting and payment obligations to government agencies, including paying any outstanding tax debts.

Employers need to pay super

contributions for eligible employees and certain

contractors. The current rate of contributions is 9.5% of ordinary time

earnings.



TASK 1 APPLYING FOR AN ABN AS A SOLE TRADERBusiness Tax Activity 3: What is a business?

Worksheet

Years 7-10

YOU WILL: � complete an ABN application as a sole trader � reflect on how difficult it was to complete the form and

suggest how businesses might seek help

YOU WILL NEED: � Fact sheet: Running a business – Tax obligations � Answer Sheet: Task 1 – Applying for an ABN as a sole trader

APPLY YOUR KNOWLEDGE

ScenarioYou are setting up a business called Quik Chicken which will sell tasty chicken and other snack products. The business is to be situated in a large, modern shop at 123 High Street, Newtown. This is your first business. You need to apply for an ABN and register for GST. According to your business plan, you expect sales revenue to be $200,000 in the first year. You intend to account for GST on a cash basis quarterly and you will not import goods into Australia. You plan to set up your business on 1 July 2018.

The business will employ four people to work in the shop, preparing, cooking and serving the various fast food products it sells. You will employ employees on a full-time and part-time basis. The wages bill will be approximately $80,000 per year and withholding tax approximately $20,000. In future you will lodge all of your forms electronically. The business will print its own payment summaries for its employees.

� Your TFN is 123 456 789. � You are an Australian resident for tax purposes and you do not want to register for fuel tax credits. � You want to nominate yourself as the authorised contact person. � The business banks with the ABC Bank; the BSB code is 103-338; the account number is 987654310.

1. Apply for an ABN using the attached ATO application form. There are two ways of getting an ABN for your business. You decide to use the form option because you do not have access to a computer at your shop or home. This will change once you get the business up and running. You will need to place an 'X' in all applicable boxes and fill in various parts. Use your own name and your address for the business. You will need to make up some of the details asked on the form.

REFLECT 2. How hard did you find it to fill in the form? Consider some people who might have problems completing the form. List some

people you might go to for help.

Activity 3: Task 1


Page 1Sensitive (when completed)

Application for ABN registration for individuals (sole traders)

The fastest way to get an ABN is to apply online at abr.gov.au. Only use this paper form where you are unable to apply online.

As long as we can validate your details against data in our systems, your ABN will be issued immediately and written confirmation of the ABN registration will follow.

NAT 2938-01.2016

INSTRUCTIONS FOR COMPLETING THIS FORMRefer to Application guide for further information on how to complete this form.Check that you are entitled to an ABN.You can complete this form electronically or with a pen. If you choose to use a pen:■Print clearly, using a black or dark blue pen.■Use BLOCK LETTERS and print one character per box.

S M I T H S T

■Place X in all applicable boxes.

■Do not use correction fluid or covering stickers.■Do not use pins or staples to attach additional details.

ABN ENTITLEMENTBefore completing this form, it is important to ensure you are entitled to be registered for an ABN.

To be entitled to an ABN, you must be carrying on an enterprise in Australia or in the course of carrying on an enterprise you make supplies that are connected with the indirect tax zone.

Taking steps to start your business requires more than an intention to carry on a business. Activities that evidence you have started business or are taking steps to start your business include activities such as:■ issuing quotes or bidding for work■advertising, setting up a social media account or a website

for the business■consulting with financial, business or tax advisors■applying for finance or opening a bank account for the

business■ leasing premises or equipment for the business

For more information about entitlement to an ABN refer to the Application Guide, visit abr.gov.au or phone 13 92 26 between 8.00am and 6.00pm, Monday to Friday.

■purchasing premises, equipment or stock for the business■buying a business■obtaining business licences or insurance to operate

(for example, public liability/professional indemnity)■ registering a patent/copyright■obtaining a registered business name■completing a business plan, feasibility study or financial

projections■ registering with relevant professional or industry associations

for the business■having existing clients■purchasing business cards or stationery for the business■ recruiting staff for the business

You do not need to have undertaken all of these commencement activities. It would be expected that you would have undertaken several of them in order to demonstrate your commitment to starting a business.

You ARE NOT ENTITLED to an ABN if your activity is carried out:■ in connection with earning a payment as a company director,

as an office holder■under a labour hire arrangement■as an employee who receives a salary or wage in return

for work or services rendered■as a private recreational pursuit or hobby■as a member of a local government body, for example, as

an elected member of a city, town or shire council.

Activity 3: Task 1


Sensitive (when completed)Page 2

Section A: Sole trader information

2 Doyouhaveataxfilenumber(TFN)?

No Have you applied for a TFN?

Yes Provide your TFN.

Yes

NoYou must provide documents to prove your identity.Refer to the Application guide for further information.

The Registrar of the Australian Business Register is authorised by the Taxation Administration Act 1953 to request your TFN. We will use your TFN to identify you. It is not an offence to not provide your TFN. If you do not provide your TFN, your registration may be delayed where we need to establish Proof of Identity.

1 Whatisyourfullname?

Date of birth

Day Month Year

Family name

First given name Other given names

Title: Mrs Miss Ms OtherMr

Activity 3: Task 1


Sensitive (when completed) Page 3

Section B: Business contact details

4 DoyouhavemorethanonebusinesslocationinAustralia?

No

YesFor each business location in Australia, include all business location details (as in question 3) on a separate sheet of paper.

Go to question 5.

5 Whatisyourpostaladdressforserviceofnoticesandcorrespondence?This is the address where government departments and agencies will send notices and correspondence.

As above If your postal address is the same as the main business address, place a cross in this box.

Country if other than Australia

Suburb/town/locality Postcode

(Australia only)

State/territory

(Australia only)

Street address

3 Whatarethecontactdetailsforyourmainbusinesslocation?This must be a street address, for example, 123 Smith St.It cannot be a post office box number, roadside mailbag, roadside delivery or other delivery point address but it can be a home address if you operate a home-based business.

Country if other than Australia

Suburb/town/locality Postcode

(Australia only)

State/territory

(Australia only)

Street address

Business hours phone number

Mobile phone number

After hours phone number

Fax number

Email

6 Whatisyourpreferredemailaddressforserviceofnoticesandcorrespondence?This is the email address where government departments and agencies may send notices and correspondence.

As above If this email address is the same as the main business email address, place a cross in this box.

Provide only one email address.

Activity 3: Task 1



Section C: Authorised contact

9 Doyouwanttonominateadditionalauthorisedcontacts?

No

Yes Provide the following details on a separate sheet of paper for each additional authorised contact:■ title each page with ‘Add authorised contacts’■your own full name (as provided at question 1) on each page■all information we request at questions 7 and 8.

8 Ifyourregisteredtaxagentisyourauthorisedcontact,providetheirregistration number.If this number cannot be found, leave this blank.

7 Tonominateanotherpersonasanauthorisedcontact,providethefollowingdetails.If you are the only contact go to section D: Reason for application.Details you provide here are for a person who may be contacted about your business. They must be authorised to make changes or update information on your behalf, for example your registered tax agent.

Family name

Position held

Preferred name Other given names

Title: Mrs Miss Ms OtherMr

Business hours phone number After hours phone number

Mobile phone number Fax number

Email

Preferred language, if other than English. We may not be able to speak to the contact person in their preferred language.

Activity 3: Task 1



Section D: Reason for application10 WhyareyouapplyingforanABN?

(select one reason only that best describes why you are applying for an ABN)

NewbusinessinAustraliaIs this your first time in business in Australia? No Yes

Investment purposesIs this your first time in business in Australia? No Yes

Contractororsubcontractor Is this your first time working as a self-employed contractor or subcontractor in Australia? No Yes

To receive payment for services Is this your first time working as a self-employed provider of services in Australia? No Yes

BoughtexistingbusinessIs this your first time in business in Australia? No Yes

What is the previous owner’s ABN?

RecommencedbusinessWhat ABN was used previously?

ChangeinbusinessstructureThe legal structure of your business has changed, for example, from a partnership to a sole trader.

What ABN was used previously?

Provide details below.Other circumstances – only select this reason if none of the above apply.

Activity 3: Task 1



Section E: Business activity details

15 Doyouoperateanagriculturalproperty?An agricultural property is land where the breeding, keeping, cultivation or growing of animals, crops, fruit or vegetables (except forest trees or marine life) is undertaken.

No Yes

Education and training

Health care and social assistance

Arts and recreation services

Other services

Transport, postal and warehousing

Information media and telecommunications

Financial and insurance services

Rental, hiring and real estate services

Professional, scientific and technical services

Electricity, gas, water and waste

Construction

Wholesale trade

Retail trade

Accommodation and food servicesManufacturing

Agriculture

Forestry

Fishing (including aquaculture)

Mining

13 Whatisthemainindustrythatyouoperatein?(Place in one box only.)X

Administrative and support services

Public administration and safety

11 FromwhatdatedoyourequireanABN?■This date should be when you start setting up the business, not when you

start trading.■ If the date is in the future, you will not receive your ABN until that date.

The date cannot be more than six months into the future.

Day Month Year

12 Ifyouintendtoceasebusinesswithinthreemonthsofthestartdate,whatistheexpectedcessationdate?If you intend for your business activity to be longer than three months, leave this question blank.

If you register for GST, you will need to complete monthly activity statements.

Day Month Year

14 Describethemainactivityfromwhichyouderivethemajorityofyourbusinessincome.Also describe the main goods produced or the main services provided.

Section F: Taxation details

16 AreyouaresidentofAustraliafortaxpurposes? No Yes

17 Doyouwanttoberegisteredforanyofthefollowing?Refer to section F: Taxation details in Application guide for information on eligibility for these options. To register for luxury car tax or wine equalisation tax, you must also register for GST.

(Place X in all applicable boxes.)

Fringe benefits taxLuxury car tax Wine equalisation tax

Activity 3: Task 1



Section G: Goods and services tax (GST)

18 AreyourequiredbylawtoregisterforGST?You are required to register if you:■are carrying on an enterprise and your GST turnover is $75,000 or more (see question 21)■supply taxi or limousine travel for fares■are a representative of an incapacitated entity (where the incapacitated entity is registered or required to be registered), or■are a resident agent acting for a non-resident (where the non-resident is registered or required to be registered).

No Yes Go to question 20.

19 DoyouwanttovolunteertoregisterforGST?If you are not required by law to register for GST you can choose to register voluntarily if you are carrying on an enterprise or intend to carry on an enterprise in the near future.

No Go to section I: Pay as you go (PAYG) withholding. Yes

20 WhatisyourdateofregistrationforGST?If you are required to register for GST, your date of registration is the date:■your GST turnover met or exceeded the registration turnover threshold of $75,000■you commenced supplying taxi or limousine travel for fares■you commenced representing an incapacitated entity, or■you commenced in your capacity as a resident agent for a non-resident.

If you are volunteering to register for GST, you can choose your date of registration.

The date of registration for GST cannot be before the ABN registration date provided at question 11.

Day Month Year

21 WhatisyourGSTturnover?To work out your GST turnover, you should calculate your current and projected GST turnover figures. Refer to the Application guide for more information about GST turnover.

$0 to $74,999$75,000 to

$149,999$150,000 to $1,999,999

$2 million to $19,999,999

$20 million and over

(Place in one box only.)X

Monthly Quarterly Annually

22 Howoftenwillyoulodgeyouractivitystatements?If your GST turnover is $20 million or more, you must lodge monthly electronic activity statements and you must provide an email address at question 6.

If your GST turnover is less than $20 million, you may choose to lodge monthly or quarterly, except if you register to defer GST on importation of goods, which you are then required to lodge monthly.

If you volunteer to register for GST, you can choose to lodge either monthly, quarterly or annually.

23 DoyouintendtoaccountforGSTonacashornon-cash(accruals)basis?Refer to the Application guide for more information about cash and non-cash accounting method.

Cash Non-cash (accruals)

24 DoyouimportgoodsintoAustralia?

No Yes You may be eligible to defer GST on imports. Refer to the Application guide for explanation.

You cannot register for GST if you are not carrying on an enterprise. Some sole traders are required to register, while others may choose to voluntarily register for GST. For more information on GST registration refer to the Application guide.

Activity 3: Task 1



27 Whichfueldoyouuseinyourbusinessactivities?

Diesel

(Place in all applicable boxes.)X

Petrol Other – including gaseous fuels

25 Doyouneedtoregisterforfueltaxcredits?

No Go to section I: Pay as you go (PAYG) withholding.

Yes

To register for fuel tax credits, you must also be registered for GST. Refer to Application guide for more information about Fuel tax credits.

26 Fromwhatdateareyoueligibleforfueltaxcredits?This date cannot be before the date you have provided at question 20 (date of GST registration) or 1 July 2006 (when fuel tax credits commenced).

Day Month Year

28 DoyouusefuelinavehiclewithaGVMgreaterthan4.5tonnestravellingonapublicroad?

No

Yes

Section H: Fuel tax credits

Activity 3: Task 1



Section J: Financial account details

If the account you wish to nominate for refunds is not one of the four complying account options presented above, you can request the Commissioner of Taxation to exercise his discretion to pay electronic funds into the account of a third party. For more information, phone 13 28 66 between 8.00am and 6.00pm, Monday to Friday.

35 WhatareyourfinancialinstitutionaccountdetailsforATOrefunds?Refunds will only be paid directly into a recognised financial institution account located in Australia. The account details provided must be held by:■you (solely or jointly)■your registered tax agent■a legal practitioner acting as your trustee or executor.

If you do not provide these details we cannot refund money.

BSB code (must be 6 digits) Account number

Is the account held by: youyou jointly

with othersyour registered

tax agent a legal practitioner as your

trustee or executor

Full account name – for example, JQ Citizen. Do not show the account type, such as cheque, savings, mortgage offset.

Section I: Pay as you go (PAYG) withholding

30 Howmanyemployeesdoyouestimateyouwillpay?This information is used to provide you with the correct number of payment summaries at the end of the financial year.Do not include people under a voluntary agreement or labour hire arrangement.

,

31 Whatamountdoyouexpecttowithholdfrompaymentstoyourpayeeseachyear?Refer the Application guide for more information on PAYG withholding amounts and how often you will need to remit to the ATO.

$ , ,.00

32 HowwillyouprovideyourPAYGwithholdingpaymentsummaryannualreporttotheATO?This annual report may be lodged online, or by paper using forms we supply.Indicate the method you plan to use to lodge your PAYG withholding payment summary annual report.

Go to section K: Declaration.Paper form supplied

by the ATOOnline

33 Howwillyouprovidepaymentsummariestoyourpayees?Provide your own

payment summariesUse payment summaries

supplied by the ATO

34 Will you pay royalties, dividends or interest to non-residents, orareyouaninvestmentbodythatwillpayinvestmentincometoAustralianresidents? No Yes

29 AreyourequiredtoregisterforPAYGwithholding?

No Go to question 36.

Yes When will withholding commence?

Day Month Year

This date cannot be before the date provided at question 11 (ABN registration).

Refer to Application guide for information on PAYG withholding.

Activity 3: Task 1



Section K: Declaration Must be completed by the sole trader or an individual authorised by the sole trader.

Make a copy of this application for your own records before you send the original copy to:Australian Business Register PO Box 3000 ALBURY NSW 2640

We will aim to provide a decision on your application within 20 days of receiving all the necessary information. If your application is incomplete or incorrect, it may take longer. Do not lodge another application during this time.

Lodging this form

Before you sign this formMake sure you have answered all the relevant questions correctly and read the privacy statement below before you sign and date this page. An incomplete form will delay processing and we may ask you to complete a new application.

Penalties may be imposed for giving false or misleading information.

PrivacyTaxation law authorises the Registrar of the Australian Business Register (ABR) to collect information, including personal information about the person authorised to sign the declaration. For information about your privacy go to http://abr.gov.au/general-information/privacy

You MUST SIGN here

Signature

Day Month Year

I declare that the information given on this form is true and correct.

OR

I declare that:■ this document has been prepared in accordance

with information supplied by the sole trader■ I have received a declaration in writing from the sole

trader stating that the information is true and correct■ I am authorised by the sole trader to give this

document to the Commissioner of Taxation or Registrar of the Australian Business Register.

36 Whoissigningthisdeclaration? (Complete all of the fields below.)

Full name of signatory

Position held (for example, owner, proprietor, registered tax agent)

Print form Reset form

Activity 3: Task 1


DEVELOP ADVICEPrepare a flow chart or a diagram with some text that shows the steps each manager should take when hiring staff. The chart/diagram must identify the following:

� what needs to be done � who needs to do it � when it needs to be done � why it needs to be done � what happens if it is not done.

When developing your flow chart or diagram, consider the following obligations:

� TFN declaration � PAYG withholding � superannuation � payment summary.

PRESENTATIONThe final product will need to be in a format that is convenient for sending a copy to each manager and can be updated easily when required.

TASK 2HIRING EMPLOYEESBusiness Tax Activity 3: What is a business?

Worksheet

Years 7-10

YOU WILL: � create a diagram or flow chart identifying the steps required

by employers in order to fulfil their tax obligations when hiring

YOU WILL NEED: � Fact sheet: Running a business: Tax obligations � Answer Sheet: Task 2 – Hiring employees

What do you need to know when you hire staff for your business?

Not doing it right can end up wasting a lot of time.

ScenarioYou are the accountant/human resources manager for Oz Clobber, a business that sells Australian-themed clothing largely to tourists. The business consists of a small number of retail shops who generally engage their own part-time staff. Despite frequent reminders, you have found that the managers of the shops do not complete the required paperwork accurately or fully when hiring an employee. This has meant a lot of wasted time as paperwork goes backwards and forwards. You have decided you need to do something to prevent this waste of time, and to ensure the business meets its legal obligations at the point of hiring.

flow chartdiagramlist of instructionsaction planprocess diagram

Activity 3: Task 2



EXPLAINING BUSINESS TAXES Fact sheet

Years 7-10

any fringe benefits to its employees. Common examples of fringe benefits include the private use of a motor vehicle or non-business accommodation, and the payment of mortgage interest or school fees. The employer providing the benefits must pay the FBT – the employee does not pay it.

Capital gains tax (CGT)A capital gain occurs when a CGT asset is disposed of, or sold, for more than its purchase price. This tax is levied on the gain or ‘profit’ made from the disposal or sale of CGT assets such as:

� assets of the business entity, for example, sole trader, company, trust or partnership

� real estate, other than your main residence � shares.

There is no set rate for capital gains tax. The net capital gain is added to the other assessable income and, after reducing the assessable income by any allowable deductions, tax is calculated on the taxable income at the relevant tax rate of the business or company or marginal tax rate for individuals. The capital gain amount may be reduced by a discount, provided you have owned the asset for at least 12 months. A discount of 50% applies only to individuals and trusts, while a 33 1/3% discount applies to super funds. This discount is not generally available for companies.

Excise dutyThis is a tax on certain types of goods produced or manufactured in Australia such as alcohol, tobacco, petroleum and alternative fuels. The tax is generally paid by the manufacturer or distributor, rather than the retailer.

Import dutyThis is a tax levied on some goods imported into Australia. The collection of import duty is based on self-assessment by importers and is administered by the Department of Immigration and Border Protection.

Land tax, payroll tax and stamp dutyThese taxes are levied by state and territory governments. Land tax is imposed by all states (plus the ACT, but not the Northern Territory) on the unimproved value of land. Payroll tax is imposed on the total wages (the payroll) paid to employees. Details of rates and exemption levels vary among the states and territories. Stamp duty is imposed on certain transactions and will vary depending on the value of the transaction. These three taxes are administered and collected by each state and territory revenue office.

BUSINESS TAXESA business has obligations for a number of other taxes including requirements to withhold tax for employees (PAYG withholding).

Goods and services tax (GST)A business must register for GST if its GST turnover is $75,000 or more ($150,000 or more for not-for-profit organisations) in any 12-month period. Businesses with a turnover of less than $75,000 may choose to register for GST. If a business does not register for GST, it cannot:

� include GST in goods and services that it sells to its customers, or � claim GST credits on goods and services used in the business.

A business that is registered for GST needs to include GST (10%) in the price of goods or services it provides. A detailed explanation of the operation of this tax is available at How does the GST work?

Tax on incomeA business pays tax on its taxable income (its assessable income less its allowable deductions). The tax rate will vary with the type of business structure, as shown in the example of Hanna and Max considered in Business structures. Companies that are base rate entities have a lower tax rate of 27.5% than other companies that turn over more than $25 million that pay the full 30% company tax rate. A base rate entity has an aggregated turnover of less than $25 million and 80% or less of their assessable income is passive, such as royalties. A company does not have to pay the Medicare levy.

Fringe benefits tax (FBT)FBT is payable on benefits provided by an employer to an employee or an employee’s associate. The FBT year runs from 1 April to 31 March. A business must register for FBT if it provides

A range of taxes can apply to businesses. Explore what these taxes can include and look at the needs of businesses in relation to government services.

Paying taxes is an important community responsibility for a business. Governments use tax revenue to provide the community with services. Infrastructure such as roads, ports, water, power and communication are important for many businesses to operate effectively. Tax provides the major revenue for the development and maintenance of infrastructure.



TASK 1TAX TYPESBusiness Tax Activity 4: Explaining business taxes

Worksheet

Years 7-10

YOU WILL: � test your knowledge of tax types � graph and interpret data from the 2017-18 Federal Budget

to identify sources of revenue and expenditure in relation to businesses

� identify the services provided by governments that support businesses

� conduct a cost-benefit analysis on business tax � develop an evidence-based argument on why paying

business tax is important

YOU WILL NEED: � Fact sheet: Explaining business taxes � Answer Sheet: Task 1 – Tax types

TEST YOUR KNOWLEDGE1. Complete the following summary of business taxes. Select a description and tax features from the lists below and match them to

each tax as appropriate (You can use the appropriate numbers in the table).

Description of taxes1. Tax levied on the total of wages paid to employees2. Tax imposed on taxable income of companies3. Tax imposed on some goods imported into Australia4. Tax levied on the gain made when disposing or selling a CGT

asset5. Tax payable on a non-salary benefit directed to an employee6. Broad based tax imposed on the supply of most goods and

services consumed in Australia7. Commodity based tax levied on production of specific

goods, often at a high rate

Features of taxes8. Rates of tax and exemption levels vary from state to state9. An applicable rate of 27.5% for a base rate entity or 30% full

company tax rate.l10. 50% discount on this tax not available to companies11. Paid by the business, not the employee who benefits12. Levied at a rate of 10%13. Typically levied on petroleum, alcohol and tobacco14. Generally paid in instalments throughout the year15. Imposed by state or territory governments16. Collected by business which sends the net amount to the

ATO17. Administered by the Australian Department of Immigration

and Border Protection Service18. Calculated and paid as income tax

Summary of business taxesName of tax Description of the tax Features of the tax

Income tax paid by companies (company tax)

Fringe benefits tax (FBT)

Capital gains tax (CGT)

Excise duties

Payroll tax

Goods and services tax (GST)

Import duty

Activity 4: Task 1


GRAPH AND INTERPRET DATAEach year the Australian government prepares a budget that details what income it expects to receive (revenue) and the money it expects to spend (expenditure). Revenue comes from a variety of sources, including business taxes. The table below is a simplified summary of the 2017-18 federal budget showing the sources of revenue and budgeted expenditure by percentage.

2017-18 Revenue % of total 2017-18 Expenditure % of total

Income tax – made up of: Social security and welfare 35

Individuals 47 Health 16

Companies and resource rent 18 Education 7

Superannuation 2 Defence 7

Fringe benefits 1 General public services 5

Total income tax 68 Other puposes 20

Other taxes – made up of: All othe functions 10

Excise and customs duty 8

Goods and services tax 15

Other indirect taxes 2

Total tax revenue 93

Non-tax revenue 7

Total revenue 100.0 Total expenses 100.00

2. Construct a pie graph (using excel if possible) showing expected government revenue for 2017-18.

3. Identify the government’s expected main sources of revenue.

Activity 4: Task 1


4. What did the government expect to spend most of its money on?

5. List the taxation types that businesses were expected to pay or collect on behalf of the government.

6. List government spending that contributes to businesses, both directly and indirectly (for example communications spending benefits businesses directly whereas health benefits businesses indirectly through contributing to the health of employees and consumers).

Direct Indirect

DEVELOP AN ARGUMENT7. Many of the goods and services the government provides are important for businesses. In groups, select one business from the

table below. Brainstorm a list of the public goods and services needed by that business to operate successfully.

A courier business A mining company A medical practice

A farmer A shop selling imported furniture A travel agent

8. Now that you have examined the types of taxes that businesses pay and the different public goods and services provided to the public by the government, complete a cost benefit analysis of business taxes.

Activity 4: Task 1


The costs and benefits of business taxCosts Benefits

9. Use this information to develop an evidence-based argument on why businesses should pay taxes.

Evidence-based argument on why businesses should pay taxes

Point State your position or the argument you want to make

Elaboration Explain in more detail why you reached this conclusion

Evidence Provide evidence to support your argument

Activity 4: Task 1


TASK 2 EXCISE AND IMPORT DUTIES – A CASE STUDY OF TOBACCOBusiness Tax Activity 4: Explaining business taxes

Worksheet

Years 7-10

YOU WILL: � construct graphs to show changes over time and make

predictions � calculate percentage increases from one year to the next in

relation to both duties and tobacco consumption � develop evidence-based arguments on the effectiveness of

tobacco taxes � make and justify predictions using evidence

YOU WILL NEED: � Fact sheet: Explaining business taxes � Answer Sheet: Task 2 – Excise and import duties: A case

study of tobacco

ANALYSE DATA AND MAKE PREDICTIONSIf you produce or distribute certain types of goods in Australia, such as alcohol, tobacco, petroleum and alternative fuels, you will pay excise duties. These taxes, sometimes referred to as ‘sin taxes’, are levied on goods that are deemed harmful to society such as alcohol, tobacco and petroleum. If you import these goods, instead of paying excise duty, you generally pay an equivalent customs duty. Imports are called 'excise equivalent goods'.

1. Construct a graph drawing on data in Table 1 to show changes to the rates of excise and import duties applied to cigarettes and tobacco since 1998 (use Excel if possible).

Table 1: Excise and customs duty applicable to cigarettes and cigars since 1998

DateExcise or duty per kilo of tobacco $

1998 88.03

2001 253.25

2004 275.55

2007 304.30

2010 327.77

2013 443.11

2016 763.20

2018 916.72

Source: http://www.tobaccoinaustralia.org.au

2. Calculate the percentage increase in the taxes (excise and imports) for each year during this period (% increase = Increase ÷ Original Number × 100).

3. Predict the effect of the increase in taxes on the consumption of cigarettes.

Period % increase

a. 1998-2001

b. 2001-2004

c. 2004-2007

d. 2007-2010

e. 2010-2013

f. 2013-2016

g. 2016-2018

Record you answers in the table below.

% increase = Increase ÷ Original Number X 100

Activity 4: Task 2


Table 2: Comparison of daily smoking rates in Australia 1998 to 2016

1998 2001 2004 2007 2010 2013 2016

Under 18 yrs 21.8 19.4 17.5 16.6 15.1 12.8 12.0

18+ yrs 22.7 20.0 18.2 17.5 15.9 13.3 13.0

Source: http://www.tobaccoinaustralia.org.au

4. Construct a graph showing the smoking rates in Australia between 1998 -2016 – show both people under and over 18 years of age on your graph.

5. Interpret this graph to assess the prediction you made in question 3.

6. Calculate the percentage decrease in smoking rates in Australian for both people under 18 and over 18 years of age for the period (% decrease = increase ÷ original number × 100).

Period % decrease (over 18s) % decrease (under 18s)

a. 1998-2001

b. 2001-2004

c. 2004-2007

d. 2007-2010

e. 2010-2013

7. Construct a graph showing BOTH the percentage increase in taxes imposed on cigarettes and the reduction in smoking rates for people under and over 18 years of age between 1998 and 2016.

Activity 4: Task 2


8. Develop an evidence-based conclusion on the effectiveness of ‘sin taxes’ on:

a. encouraging people to quit smoking (over 18s) b. discouraging young people to start smoking (under 18s).

9. The excises and import duties for cigarettes increased significantly between 2013 and 2016. Based on what you have learned so far, predict the impact of this increase on the prevalence of smoking in Australia. Justify your response with statistics.

Activity 4: Task 2



THE GOODS AND SERVICES TAX (GST)

Years 7-10

Fact sheet

Discover how to calculate the goods and

services tax (GST) for various items and discuss what constitutes a fair tax.

PRICES TO INCLUDE GSTThe amount of GST (10%) must be included in any advertised or displayed price of goods and services that are sold and that are subject to GST. If a business fails to include GST in any price it charges, that GST amount will need to come from its own resources.

GST is collected and refunded/credited at each stage of the production process. In the end, it is the final consumer of the item who pays the full amount of the GST. The following examples show the different ways that GST is treated, depending on the nature of the transaction.

Example A: Selling an itemSophie operates the shop Only Jeans. She needs to sell each pair of jeans for $100 to cover her costs and desired profit. Sophie also needs to add $10 (10%) to that price, as this is the amount of GST to be forwarded to the ATO after the sale. The total price charged to the customer is therefore $110.

If Sophie had left her price at $100, she would be able to keep only $91 for the jeans, because 1/11th of the sale price must be paid to the ATO ($9 in this case).

The displayed price of an article includes GST of 1/11th of the sale price, so it is possible to work out the GST portion by dividing the sale price by 11.

Example B: Buying an item for a businessSophie buys a cash register for use in her shop. Its price is $1,100. If Sophie divides $1,100 by 11, she will find that the GST portion of the amount paid is $100. As Sophie’s business is GST-registered, Sophie can claim this $100 as a GST credit. Sophie has to have a valid tax invoice for all purchases costing more than $82.50 (including GST) before she can claim the GST credits.

Example C: Who pays the GST?Because a GST-registered business can claim back the GST paid on goods and services used in the business, the net effect is that the final private consumer is paying the GST, as shown in the following flow chart.

In the end, it is the final consumer of an

item who pays the full amount of GST. The

GST rate is 10%.



GST FLOW CHART – GROWER TO CONSUMER

Supply Chain

Wood

Timber

Table

GST Amount

Amount paid to ATOGrower

Kelly Pine Plantation grows pine trees and sells the unprocessed

wood to a producer for $44 including $4 GST

Producer Tall Timber Pine Mills produces

timber and sells it to a manufacturer for $66 including

$6 GST

Manufacturer Fine Pine Products makes pine furniture and sells a pine table to a retailer for $154 including

$14 GST

Retailer Fancy Furniture sells the pine table to a consumer for $330

including $30 GST

Net result Anne is the consumer who buys the pine table for $330 including $30 GST, which is collected by

the retailer

Net result The ATO has collected $30

GST from Anne, the final

consumer

GST

GST

GST

GST

less GST paid

previously

less GST paid

previously

less GST paid

previously

less GST paid

previously

GST to pay now

GST to pay now

GST to pay now

GST to pay now

Grower pays $4 GST

to the ATO

Producer pays $2 GST

to the ATO

Manufacturer pays

$8 GST to the ATO

Retailer pays $16 GST

to the ATO

$4

$6

$14

$30

$0

$4

$6

$14

$4

$2

$8

$16



TASK 1CALCULATING GSTBusiness Tax Activity 5: The Goods and Services Tax (GST)

Worksheet

Years 7-10

YOU WILL: � calculate GST to be added to an item at the final selling

point � calculate GST on the final selling price � calculate GST paid by the retailer and by the retail customer

YOU WILL NEED: � Fact sheet: The goods and services tax (GST) � Answer Sheet: Task 1 – Calculating GST

APPLY YOUR KNOWLEDGE1. Complete Table 1 and calculate the GST amount to be added to the value of each item.

Table 1

ItemValue $

excl GSTGST to be added $

Selling price $

Jeans 130

Jumper 120

Mobile phone 550

2. Complete Table 2 and calculate the GST portion of the prices and the price without GST. Prices with GST are given.

3. Complete Table 3 to show the breakup of the selling price for a mobile phone. Then answer questions 4 to 8.

Table 3

ItemAmount paid by phone retailer

GST paid by phone retailer

(275 ÷ 11)

Amount paid by buyer

See table 1

Amount of GST (in selling price)

See table 1

Amount kept by the retailer from

sale of phone

Mobile phone 275

4. Who collected the final GST payment? __________________________________________________________________________________________

5. What is the net amount of GST that the phone retailer must send to the ATO?

6. What is the full amount of GST finally received by the ATO?

7. Where does the difference between the amount paid by the retailer and the buyer come from?

8. Who actually pays the GST amount? (That is, who pays the full GST amount and is not entitled to any GST credit?)

9. Explain why the value of the GST itself is not equivalent to 10% of the GST inclusive price.

Table 2

ItemValue $

excl GSTGST to be added $

Selling price $

Sneakers 220

Meal in restaurant 121

Chair 165

Activity 5: Task 1


TASK 2IS GST A FAIR TAX?Business Tax Activity 5: The Goods and Services Tax (GST)

Worksheet

Years 7-10

YOU WILL: � work collaboratively to consider different viewpoints about

what constitutes a fair tax � list the characteristics of GST � decide on whether you think the GST is a fair tax � debate your findings with other students, identifying points

of agreement and disagreement

YOU WILL NEED: � Fact sheet: The goods and services tax (GST) � Answer Sheet: Task 2 – Is GST a fair tax?

CONSIDER DIFFERENT PERSPECTIVESThere are different views on whether the GST is a ‘fair tax’.

1. Read the quotes below.

"The GST is a much 'fairer' tax because it is harder to evade. Everybody who spends money will end up paying GST. That includes people operating in the black economy, tourists and even those who pay no income tax".

“When the GST is examined as a proportion of income, the GST is found to be a regressive tax, even though the GST is applied at a constant rate of 10 per cent. This is because people with higher incomes tend to spend less (and save more) of their income than people with lower incomes, which results in less GST being paid as a percentage of the income of higher income earners”.Varela, P. (2016 February 24) Brief: Progressive and Regressive Taxes. Retrieved from URL http://www.austaxpolicy.com/brief-progressive-and-regressive-taxes/

2. Work with a partner to analyse these statements. Although views will depend on your personal beliefs and values, the following prompts may get you started.

a. Identify what you believe are the main characteristics of a 'fair' tax. b. List the main characteristics of consumption taxes such as GST. c. Conclude: Do the characteristics you listed for GST match those you would expect of a 'fair' tax?

3. Debate your findings with those of another pair of students. How much agreement was there in your views? On what aspects did you disagree?

Points of agreement Areas of diverging views

Activity 5: Task 2


PAYING COMPANY TAXThe dates for the lodgment of tax returns and payment of income tax debts vary according to the nature and size of the company.


HOW IS BUSINESS TAX COLLECTED?

Years 7-10

Fact sheet

A business activity statement (BAS) is used by businesses to report and

pay tax obligations.

MANAGING BUSINESS TAX PAYMENT OBLIGATIONSA business must understand their tax obligations so they can plan ahead to pay the right amount of tax at the right time. They need to keep good records, budget and manage the cash flow of the business to make sure they can pay their tax bill on time.

To manage their payment obligations, a business should keep money aside:

� for paying their PAYG instalments, income tax payments, and super guarantee payments � from any capital gain made on the sale of a CGT asset, such as property.

Businesses registered for GST should keep GST collections in a separate account.

Tax laws require the ATO to charge interest (the general interest charge, or GIC) when tax is paid late. If a business is experiencing serious financial difficulties or hardship, or is affected by a natural disaster such as bushfire or flood, they should contact the ATO for help. If the business contacts the ATO and seeks to negotiate a solution, the ATO may reduce some or all of this GIC.

See the next page for an example of a Negotiated payment arrangement:

BUSINESS ACTIVITY STATEMENTA business uses a business activity statement (BAS) to report and pay its tax obligations. The format of the BAS is personalised according to the business situation and any options the business has previously selected.

A business can lodge and pay tax electronically, or lodge their tax information by using a form. Businesses must report on time to avoid interest and penalties.

The following taxes are detailed and amounts collected on the BAS:

� GST collected and paid out � pay as you go (PAYG) instalments – an estimated amount of your tax liability for the year on business and investment income � pay as you go (PAYG) withholding – the amount you withhold from payments to employees, contractors and company

directors. A business may also have to withhold from payments to other businesses if they do not quote their ABNs. � other taxes, depending on the nature of the business

A business that is not registered for GST does not collect GST and cannot claim GST credits, but uses an instalment activity statement to account for the other taxes listed above. An instalment activity statement is also used by individuals who need to report their PAYG instalments.



HOW DOES THE ATO TREAT A TAX DEBT?The ATO offers a number of different options when a business is having trouble meeting

their tax debt. It is important to talk to the ATO as early as possible to prevent the

problem escalating.

The ATO will take firm action, including legal action, if taxpayers:

� are unwilling to work with the ATO

� continually default on agreed arrangements, or

� do not have the capacity to pay their tax debts.

Under tax law, a person who carries on a business must keep records to explain all of the business’s transactions and related activities. Generally, these records must be kept for five years. Records that refer to the purchase or disposal of CGT assets may need to be kept for more than five years after disposing of the asset.

Businesses need to keep a record of all transactions so that they can:

� prepare an annual tax return � prepare business activity statements � meet other tax obligations.

Records that businesses need to keep are listed below:

Income and sales recordsRecords of all sales transactions – for example, tax invoices, receipt books, cash register tapes, record of cash sales.

Expenses or purchase recordsRecords of all business expenses, including cash purchases. Records include receipts, invoices, including tax invoices, cheque book receipts, credit card receipts and diaries to record small cash expenses. Records showing how you calculated any personal use of something you purchased.

Year-end recordsThese include list of creditors (that you owe money to) or debtors (that owe you money), and worksheets to calculate the depreciating value of your assets, stock take sheets and capital gains records.

Bank recordsDocuments you receive from the banks such as bank

statements, loan records and bank deposit books.

Goods and services tax (GST) recordsThe main GST records you keep are tax invoices from your suppliers. They are needed if you want to claim GST credits on your purchases. To ensure it is acceptable as evidence for tax purposes, each business document must include:

� the date the document was prepared � the date of any purchase � the name and ABN of the supplier or service provider � details of what was purchased � the cost of the purchase, including any GST.

It is not illegal for a business to use cash when buying or selling goods or services, but it is illegal for a business to deliberately use cash transactions to hide its income and avoid its tax obligations. The ATO uses activities like its data matching program to make it harder for people and businesses to get away with not reporting all of their cash transactions.

Employee and contractor recordsIf you have employees or contractors, you will need to keep:

� tax file number (TFN) declaration forms or withholding declaration forms

� record of wages, allowances and other payments you make to them

� superannuation records, including payments you make and records that show you have met your superannuation obligations

� records of fringe benefits you provided � copies of any contracts you have with any contractors.

WHAT RECORDS DOES A BUSINESS NEED TO KEEP?

Scenario: Paying tax debt over timeSole trader Rick runs a painting business. He did a lot of work for a large company and was owed a large payment for this work. Unfortunately, the company closed down and Rick was not paid. As a result, Rick had trouble paying his own bills and soon found himself with a business activity statement tax debt of $30,000.

Rick contacted the ATO and explained that he could not pay this debt immediately because of his cash flow problem. After careful examination of his expected cash flow, the ATO proposed that Rick could pay his debt off over six months, while paying future business activity statement tax obligations on time.

The general interest charge (GIC) added to the debt over the six months of the arrangement was remitted in full by the ATO at the end of this arrangement and refunded to Rick.

The ATO's decision to remit the GIC for Rick was based on his efforts to bring his tax payment obligations up to date and the fact that the circumstances leading to his debt were beyond his control.



TASK 1 PREPARING AND LODGING A BUSINESS ACTIVITY STATEMENT (BAS)Business Tax Activity 6: How is business tax collected?

Worksheet

Years 7-10

YOU WILL: � complete a business activity statement to calculate the

amount a business owes the ATO or is owed by the ATO � decide on and justify the most appropriate method for

lodging business activity statement for different businesses � extend your understanding by surveying business owners

and sharing your results with the class.

YOU WILL NEED: � Fact sheet: How business tax is collected? � Answer Sheet: Task 1 – Preparing and lodging a business

activity statement (BAS)

The BAS helps businesses report and pay their:

� goods and services tax (GST) � pay as you go (PAYG) instalments � PAYG withholding tax � other taxes.

Businesses use a business activity statement to report and meet their tax obligations with the Australian Taxation Office (ATO). The frequency of lodgment can vary according to the size of the business.

ScenarioACME Novelties sells party supplies and fun gifts from a shop and over the internet. Higher shipping costs mean all sales are in Australia, with no overseas customers. The business has an Australian business number (ABN) and is registered for GST.

The owner, Will Simons, wants to complete his activity statement to find out whether he must pay the ATO this quarter or whether he is entitled to a refund.

He gives you the following financial information about the business to help fill in the form. Will does not record his PAYG instalments on his BAS as he receives a PAYG instalment notice from the ATO each quarter.

Information Fill in at Amount

Total sales including GST G1 $220,000 (sales $200,000 + GST $20,000)

Non-capital purchases * G11 $66,000 (purchases $60,000 + GST $6,000)

* This is the cost of stock and other normal operating expenses.

Will is going to use Option 1: Calculate GST and report quarterly when he fills in the activity statement.

APPLY YOUR KNOWLEDGE1. Fill in the excerpts from the business activity statement below and calculate whether ACME Novelties has to make a payment to

the ATO or if it is entitled to a refund.

Activity 6: Task 1


MAKE A DECISIONOptions for lodging business activity statementsOnlineThe ATO will send you a notification to advise when your activity statement is available.

You can lodge BAS online: - directly from your standard business reporting enabled software - through the ATO business portal - using ATO online services for individuals and sole traders (you will need a myGov account linked to the ATO).

Registered tax or BAS agent Your registered tax or BAS agent can only electronically

lodge the GST Annual Information Report using the electronic lodgment service (ELS) or practitioner lodgment service (PLS). Your Tax and BAS agent can view activity statements sent to your myGov inbox and you can still access your activity statements through the Business portal or myGov.

By phone for ‘nil’ statementsPhone 13 72 26 to lodge your monthly or quarterly BAS with nothing to report at any label. You can call this automated service 24 hours a day, seven days a week.

By mailPost your original, completed business activity statement with your cheque using the pre-addressed envelope provided in your BAS package.

Activity 6: Task 1


2. Decide on the best option for the following customers for lodging their BAS and provide reasons for your choice.

Description Best lodgment method Explanation

Citizen A Has been overseas for the past 3 months and has nothing to report

Citizen B Has a business employing over 30 staff and has complicated tax affairs due to the import and export of goods and several capital purchases

Citizen C Is a sole trader with very simple tax affairs. Does not employ extra staff and keeps financial records using an online accounting program

Citizen D Does not have a computer and has a very simple business but does have GST sales and purchases to report

EXTEND YOUR UNDERSTANDING3. Survey some small business people in your local area and ask them about the following issues/topics:

� Do they experience any problems in preparing their business activity statement? � Who normally prepares the business activity statement for their business? � What records or information do they need to prepare their business activity statement?

4. Report the results of the survey to the class.

Activity 6: Task 1


TASK 2KEEPING BUSINESS RECORDSBusiness Tax Activity 6: How is business tax collected?

Worksheet

Years 7-10

YOU WILL: � analyse a range of record-keeping practices and identify the

implications of these practices and the tax implications not being met

� provide advice on how to improve the record keeping practices of a hypothetical business

YOU WILL NEED: � Fact sheet: How business tax is collected? � Answer Sheet: Task 2 – Keeping business records

ScenarioAdele and Nalu have set up a business called Beachcrazi that sells surfboards, leisure wear and a range of skate boards. The business has been running for less than a year and is quite profitable. They attended a local business network meeting and heard from a speaker on the importance of keeping good records for tax and business purposes.

Both Adele and Nalu love the selling and marketing side of the business, but are not interested in the paperwork. They hired a business advisor who identifies a number of problems with their record keeping and business practices. These problems are listed below.

Problem 1 The payments are handled poorly. Cheques are often written out with little or nothing being written on the cheque butt. Some bills are paid straight out of the cash register with a slip of paper being left in the till giving details about the payment. All of the invoices for expenses are kept in a desk drawer and filed once a month or when they have time.

Problem 2 They have incomplete records of GST paid out for stock and expenses. Sometimes they sell stock at surf carnivals. This means they have little idea of how much GST they have collected as they only deal in cash.

Problem 3 They have a number of full-time and part-time employees, and they do not realise that they should be paying super on their wages.

Problem 4 They have a poor system of paying employees as they do not give employees a pay slip each week. Adele and Nalu just add up the number of hours the employee works and multiply the figure by their hourly rate.

Problem 5 The couple lives together and pay most of their personal and business expenses from the same bank account or take money from the till.

Problem 6 When Adele and Nalu started the business, they were short of money and did not get business stationery or sales documents printed. They usually write in the name of the business and the ABN on the standard invoice book they bought from the newsagent. They sometimes forget to include the ABN on an invoice. This explains why some businesses who owe them money are deducting No ABN withholding from their payment.

Problem 7 The end of the taxation year is approaching and one of the employees asks when his payment summary will be available. They are unsure what a payment summary contains and why they should prepare them.

Problem 8 Adele and Nalu are not keeping tax invoices or records once they have been paid as they feel that it is unnecessary.

Activity 6: Task 2


YOUR TASK1. Read the problems listed above. Identify how their recording system may cause taxation and business problems and consider

how the situation might be overcome.

Problem number

Taxation and business issues caused by the record keeping method Strategies to address the problem

1

2

3

4

5

6

7

8

Activity 6: Task 2


2. Set up a list of things that Adele and Nalu will need to do to get on top of their record-keeping problems.

Activity 6: Task 2


CHALLENGE QUIZBUSINESS TAXBusiness Tax

Worksheet

Years 7-10

YOU WILL: � test your new knowledge about business tax

YOU WILL NEED: � Answer Sheet: Challenge quiz – Business taxes

CHALLENGE QUIZ: BUSINESS TAX1. Organise yourselves into teams to play the Challenge quiz: Business tax.

2. Read the rules then do the quiz. (Or, you can use the questions to create your own review challenge activity for the Business tax module).

3. You might want to allow lesson notes to be used during the quiz or have a review session before playing the quiz.

HOW TO PLAY THE CHALLENGE QUIZ4. Each team chooses a topic from the Business tax module.

5. Each team must start by answering one 100-point question correctly before moving to the higher point questions.

6. If a team answers the question correctly, they earn the allocated points.

7. If a team answers the question incorrectly, the next team earns the opportunity to answer the same question.

8. A team has one minute to answer the question. The team can use that time to consult and agree on a response, before the nominated member provides the answer.

9. A team must have a total score of 600 points before they can attempt to answer a 500-point question.

10. Your teacher may apply penalties for students who call out answers or interfere with other groups.

Note: The topics 4 and 5 of the module, Explaining business taxes and The goods and services tax (GST), are covered in part 4 of the Challenge quiz under the combined topic of Business tax.

Business Tax: Challenge Quiz


Points Topic 1: What is a business?

100 What is a business?

200 How does a hobby differ from a business?

300 List three sections that should be included in a business plan.

400 Identify two documents that might be included in a financial plan.

500 Explain why business planning is important.

Points Topic 2: Business structures

100 What is a sole trader?

200 How are the profits made by a partnership shared?

300 What is meant by the term 'limited liability' in relation to companies?

400 How is income tax levied on the profit made by a sole trader?

500 What is an essential difference in ownership structure between a sole trader business and a company?

Points Topic 3: Running a business - tax obligations

100 What is PAYG withholding?

200 What factors are taken into account when deciding the amount of tax to withhold? (PAYG withholding)

300 What is the minimum rate that employers must contribute in superannuation for their eligible employees?

400 What might happen if a business does not have an ABN?

500 List two things a business must do when it ceases trading or has been sold.

Points Topics 4 and 5: Explaining business taxes

100 At what rate is GST charged in Australia?

200 Name three items that attract excise duty.

300 List two features of company tax.

400 Above what level of sales revenue must a business register for GST?

500 Can a company claim the 50% discount on the capital gains tax paid on the profit from the sale of a CGT asset?

Points Topic 6: How is business tax collected?

100 What is a business activity statement?

200 Name two taxes a business will report on an activity statement.

300 Under taxation law, how long must a business generally keep its records?

400 Outline four records that a business may need to keep.

500 List three things a business document must include for it to be acceptable as evidence for tax purposes.

YOUR CHALLENGE QUIZ QUESTIONS

Business Tax: Challenge Quiz


QUICK QUIZBUSINESS TAXBusiness Tax

Worksheet

Years 7-10

YOU WILL: � test your new knowledge about business tax

YOU WILL NEED: � Answer Sheet: Quick quiz – Business taxes

QUICK QUIZ: BUSINESS TAXAfter you’ve finished all the topics in the module, Business tax, you can take an individual quiz to see if you’re a tax expert. There are 25 questions in this activity. Choose ONE answer for each multiple choice question.

1. A business is defined as an activity where: � goods are sold from a store or online � services like lawn mowing are carried out � a person sets up an activity to sell goods or services to make a profit � two partners set up a business to repair motor vehicles.

2. Peta runs a plumbing business called Peta's Plumbing in the local area. She has a truck and equipment, and buys materials as she needs them. She is classified as a sole trader because she:

� is the owner and manager of the business � is the owner of the business � trades under her own name � does not have any partners or other shareholders.

3. Olena and Alfonso run a Spanish restaurant as a partnership. He does the cooking and she takes care of front of house. Their partnership agreement splits profits 60/40. They would pay income tax at:

� the applicable company tax rate � personal tax rates � partnership tax rates � company income tax rates.

4. At the end of June, Olena and Alfonso have to submit a business activity statement for the business. The activity statement contains information on:

� pay as you go (PAYG) withholding � GST collected on sales, both cash and credit � GST paid out on purchases � all of the above.

5. Quik Chicken is a business that sells takeaway food. It has an Australian business number (ABN). The ABN will not be used when: Choose one

� calculating income tax for the company � preparing a business activity statement � claiming GST credits � identifying the business to other businesses when invoicing for goods.

6. Sarah, who is the owner of a business, is unsure what the PAYG withholding system is all about. It relates to: � partnerships � companies � trusts � employees.

Business Tax: Quick Quiz


7. Sarah gives her sales representatives the use of a motor vehicle for work purposes. They can use it for private use outside work hours. The tax payable on this is called:

� goods and services tax � company tax � fringe benefits tax � capital gains tax.

8. A registered company has owned a vacant warehouse for three years. The manager decides to sell it because property prices are high and the company can make a good profit on the sale. He has read that a discount is available on the capital gains tax amount if the asset has been owned for more than one year. The amount of the discount for a company is:

� 0% � 20% � 33.33% � 50%

9. Companies have to pay tax on their taxable income. This type of tax is a: Choose one � regressive tax � proportional tax � flat tax � progressive tax.

10. Peta's Plumbing does bathroom and toilet renovations as well as normal plumbing jobs. The business is registered for GST. A client gets a shower recess installed. The shower recess costs Peta $500 to buy, plus GST of $50. The final cost to the client is $1,200, plus GST of $120. The net amount of GST that Peta's Plumbing is required to pass on to the ATO will be:

� $170 � $70 � $50 � $700

11. A business which is just starting off is preparing its sales invoice template. The invoice must include the following information: � date and amount of the purchase, and date the invoice was prepared � name and ABN of the business � date of the transaction and details of what is sold � all of the above information.

12. Brett and Vijay are considering setting up a cricket coaching school going around to local cricket clubs. They will both work in the business on a part-time basis. The business will sell some cricket gear to customers and clubs at a discounted price. They decide to set up as a partnership as they have both contributed equal amounts of capital and will work equal hours. The profits will be shared equally. They wonder how they will do a tax return at the end of the year. The answer is that they will have to pay tax:

� at a flat rate of 27.5% � only if they make a satisfactory profit � at personal income tax rates � on the profits from the coaching side of the business.

13. The cricket coaching school set up by Brett and Vijay will have an estimated sales revenue of $74,000 per year. They are unsure of whether they need to register for GST. The advantage of registering for GST is that the business can:

� claim GST credits on goods and services used in the business � pay a lower rate of GST � be on a stronger legal footing and be protected from creditors � get an ABN.

14. A business wishes to calculate the amount of net tax payable or refund it is due at the end of the financial year. This amount is the balance of:

� all income less tax credits and tax offsets � assessable income less allowable deductions � assessable income less tax credits and tax offsets � tax on taxable income less tax credits and tax offsets.



15. The date by which all Australian companies have to lodge their tax return and pay income tax debts is: � June 30 each year � varied according to the nature and size of the company � December 31 each year � June 30 plus 90 days.

16. SlumbaSleep is just starting up as a business to sell beds and mattresses. The management has not yet registered for an ABN. One disadvantage to the business is that:

� their employees will not be able to get a yearly payment summary � they will have to pay a higher rate of company tax � they will have to pay a higher rate of GST � other businesses it deals with may withhold No ABN Withholding from any payment made to SlumbaSleep.

17. A business has to make a super contribution if an employee is: � over 18 years of age, working 35 hours per week and earning over $450 each calendar month � over 25 years old and earning $420 per calendar month � a housekeeper who is working 12 hours per week � under 18 years old and working part-time for less than 10 hours per week.

18. A tax collected by state or territory governments. Select the words from below that best describe the statement above.

� Stamp duty � Capital gains tax � Import duty � Excise duty

19. A tax levied on profit made from the sale of CGT assets. Select the words from below that best describe the statement above.


20. A tax levied on some goods imported into Australia. Select the words from below that best describe the statement above.


21. A tax levied on certain types of goods produced or manufactured in Australia. Select the words from below that best describe the statement above.


Decide whether the following statements are true of false.

22. A business must deduct an additional amount from an employee’s gross payment if the employee is paid $1,074 or more per week and advises that they have an accumulated HELP debt.

23. When a business ceases operation, it must change its business name.

24. Super is contributed for each employee at a minimum rate of 8.75% from all earnings including overtime.

25. The amount of PAYG withholding is at a fixed rate for each employee.
