Understanding the differences between personal and business taxes is crucial to business owners and individuals – especially if you fall into both categories!
To get it right, you need to understand what’s involved in lodging your personal and business tax returns, the cut off date for individuals verses businesses and what you can and can’t claim under each.
We’ve broken down the key differences between personal and business taxes to create a handy all-in-one guide for you. If managing your tax returns sounds overwhelming, get in touch with us and we’ll help simplify the process.
What are personal taxes?
Personal taxes, or individual’s taxes are paid by every Australian over the age of 18 who has a tax file number. There are also a high number of Australians under 18 who pay taxes based on how much they earn on a weekly basis.
Individual taxes are determined by your annual income. The five tax thresholds and how they are taxed are:
- 0 – $18,200 – Nil
- $18,201 – $45,000 – 19 cents for each $1 over $18,200
- $45,001 – $120,000 – $5,092 plus 32.5 cents for each $1 over $45,000
- $120,001 – $180,000 – $29,467 plus 37 cents for each $1 over $120,000
- $180,001 and over – $51,667 plus 45 cents for each $1 over $180,000
Every year from 1 July individuals can submit a tax return and potentially receive a portion of their tax back. This is dependent on their income, interest accumulated, investments and outgoings throughout the year.
What are business taxes?
Business taxes are more complex than personal taxes and will vary according to your business type, number of employees and the fringe benefits you offer your employees.
Unlike personal taxes, business taxes come in various forms and can be paid at different points of the year.
Income tax is the most common type of business tax (and is similar to your individual tax return) and is calculated based on your business’ assessable income.
Your business can also voluntarily make Pay As You Go (PAYG) instalments throughout the year, which are paid quarterly. This will affect your yearly income tax return.
All Australian businesses are also required to register for GST to ensure their taxes are calculated correctly.
So what are the key differences between personal and business taxes?
We’ve created an easy comparison below to help you understand the differences so you can better understand how they apply to you.
| Personal Taxes | Business Taxes |
|---|---|
Every individual submits the same type of tax return. | Tax returns vary based on the business structure (i.e. sole trader, company, trust). |
Tax return needs to be lodged by 31 October to receive the return for the previous financial year. | Lodgement date varies if you’re lodging yourself or through a registered tax agent. |
Individuals can submit small deductions including travel time, laundry costs, etc. | Businesses can claim deductions and concessions for business expenses, such as Capital Gains Tax relief and instant asset write-off. |
Taxes are taken from each pay whether that’s weekly, fortnightly or monthly, depending on your employer. | Taxes can be paid as PAYG instalments. |
It’s crucial to get your tax lodgements right as the ATO conducts random audits using cross-checking systems that weed out inaccurate and fraudulent deduction. Whether by accident or on purpose, the tax office will always find any inconsistencies!
An accountant or professional tax agent will be able to assist you with your taxes if you’re unsure of what you’re doing.
If you are looking for an accountant you can trust, we’d love to help. We’re here to help you all year round to take the hassle out of your business and personal finances and ensure you are lodging your tax returns correctly.
