Introduction

Business compliance can feel complex. This series breaks down common financial and tax topics into clear, practical explanations. Each article provides a straightforward overview to help you understand what matters and why.

Business Taxes

When you start a business, it can feel like there are taxes coming from every direction. Income tax, GST, PAYG, the terminology alone can be overwhelming.

Many business owners are unsure which taxes apply to them personally and which apply to the business itself. The answer depends on your structure (sole trader, company or trust), but there are a few common obligations most businesses will encounter.

Income Tax

Income tax is paid on “taxable income” which is calculated at the end of the financial year.

Everyone pays income tax on their taxable income, whether they are an employee or a business owner. The rate depends on whether you are taxed as an individual or as a company.

If you operate as a sole trader, the business profit is included in your personal tax return and taxed at individual rates.

If you run a company, the company pays tax on its profit at the company tax rate. You may then also pay personal income tax on any wages or dividends you receive from the company.

This is where it can feel like you are being taxed twice. In reality, the company and you as an individual are separate taxpayers, each with their own obligations. Understanding how the structure works helps avoid confusion and allows for better planning.

PAYG Withholding

If you employ staff, you are required to withhold tax from their wages and remit it to the Australian Taxation Office (ATO).

This is not an additional tax for your business, you are withholding part of your employee’s wage and forwarding it to the ATO on their behalf.

PAYG Instalments

PAYG Instalments (PAYGI) are prepayments towards your income tax. Instead of facing a large tax bill at the end of the financial year, you pay it progressively, usually each quarter.

Depending on your business structure, PAYG instalments may be paid by you personally (for example, as a sole trader) or by your company.

The amounts you pay throughout the year are credited against your final tax assessment when your return is lodged, reducing what is left to pay at year end.

GST

If your business is registered for GST, you collect GST on sales, claim GST on business purchases and report the net amount through your Business Activity Statement (BAS).

As discussed in our GST article, this is money you collect and remit — it is not business income.

Fringe Benefits Tax (FBT)

Fringe Benefits Tax applies when you provide certain benefits to employees in addition to their wages. This might include things like a company car for private use, paying personal expenses, or providing other non-cash benefits.

FBT is separate from income tax and is reported annually. It is paid by the employer, not the employee.

Not every business has FBT obligations, but it is important to understand when a benefit may trigger it, as it is often overlooked.

Why this matters

Each of these taxes has different reporting requirements and due dates. Confusion often arises when business owners do not clearly separate them or fail to set funds aside as they go.

The result can be unexpected ATO debt and cash flow pressure.

Conclusion

You do not necessarily pay more tax as a business owner — but you are responsible for ensuring the reporting is accurate and up to date.

If you would like support with GST, BAS, payroll or PAYG obligations, First Class Accounts – Canberra Central can help ensure your records are accurate and your reporting requirements are met.