1. S TAGE 2 M ATHEMATICAL A PPLICATIONS Mathematics and Small Business Business Structures and Taxation

2. L EGAL S TRUCTURE OF THE BUSINESS When starting a small business you will need to decide which legal structure is the most appropriate for your type of business. There are a number of legal requirements that need to be met.

3. There are four commonly used business structures in Australia:  sole trader  partnership  company  Trust It's important to understand the responsibilities of each structure because the structure you choose may affect:  the tax you're liable to pay  asset protection  ongoing costs. Typically, costs and complexity increase as you move from a sole trader to a partnership, to a company or trust.

4. S OLE T RADER A sole trader is the simplest and cheapest business structure you can choose as it has few legal and tax formalities. If you operate your business as a sole trader, you trade on your own and control and manage the business. You are legally responsible for all aspects of the business, and debts and losses can't be shared with other individuals. As a sole trader you're responsible for your own super arrangements and any staff you employ.

5. The key features of a sole trader business structure are that you: use your individual Tax File Number (TFN) when lodging your income tax return apply for an ABN and use this number for all your business dealings register for Goods and Services Tax (GST) if you carry on an enterprise (you must be registered for GST if your annual GST turnover is $75,000 or more) pay tax at the same income tax rates for individual taxpayers pay quarterly Pay As You Go (PAYG) instalments towards the amount of tax you expect to pay at the end of the year claim a deduction for any personal super contributions you make after notifying your fund.

6. P ARTNERSHIP A partnership is relatively inexpensive to set up and operate. It is an association of people (not always just 2) who carry on a business and distribute income or losses between themselves. A formal partnership agreement is an important tax document if profits or losses are not distributed equally among partners. Partners are responsible for their own super arrangements; however, the partnership is required to pay super for any employees.

7. The main features of a partnership business structure are: income, losses and control of the business is shared among the partners the partnership has its own TFN and must lodge an annual partnership return showing all income and deductions of the business a partnership doesn't pay income tax on the profit it earns – each partner pays tax on the share of profit they receive a partnership has its own ABN a partnership must be registered for GST if its annual turnover is $75,000 or more.

8. C OMPANY A company is a distinct legal entity with higher set-up and administration costs because of additional reporting requirements. Companies are regulated by the Australian Securities & Investments Commission (ASIC). A company is run by its directors and owned by its shareholders. A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.

9. The main features of a company business structure are: a company must apply for a Tax File NumberExternal Link (TFN) and use it when lodging its annual tax return a company registered under the Corporations Act 2001 is entitled to an Australian business number (ABN). A company not registered under the Corporations Act may register for an ABN if it's carrying on an enterprise in Australia a company can register for Goods and Services Tax (GST) if it's carrying on an enterprise. A company must be registered for GST if its annual turnover is $75,000 or more ($150,000 for non-profit organisations) the money a business earns belongs to the company, not individuals companies must lodge an annual company tax return showing income, deductions and income tax liable to pay companies usually make Pay As You Go (PAYG) instalments, credited against total annual income tax. The amount of tax it's liable to pay is reduced by any PAYG instalments paid during the year

10. companies have no tax-free threshold a company pays income tax on its assessable income (profits) at the company tax rate and may be eligible for tax concessions a company may treat income and deductions relating to personal services income (PSI) differently if the company has any eligible workers, it must pay them super guarantee contributions. This includes you, if you are a director of the company, and any other company directors.

11. T YPES OF C OMPANIES There are two major types of companies: Proprietary (private) PTY Ltd, ie Proprietary Limited which means private and limited liability (for the shareholders). Have 2-50 shareholders. The shares cannot be bought or sold to the general public on the stock exchange. Public Company is listed on the stock exchange, no limit to the number of shareholders. Must produce a prospectus.

12. T RUSTS  Setting up a trust can be expensive, as a formal deed is required and there are formal yearly administrative tasks for the trustee to undertake. A trust deed outlines how the trust will to operate.  A trustee is legally responsible for the operation of the trust. The trustee can be an individual or a company. Profits from the trust go to beneficiaries.  The main features of a trust business structure are:  a trust must have its own TFN for lodging its annual tax return and must show all income and deductions of the business, plus any distributions to its beneficiaries  a trust must have its own ABN  a trust must be registered for GST if annual turnover is $75,000 or more ($150,000 for non-profit organisations)  a trust may be liable to pay tax depending on the wording of its deed and whether any income the trust earns is distributed to its beneficiaries  the trust may be able to access tax concessions  beneficiaries of the trust may be liable to make Pay As You Go (PAYG) instalments on distributions they receive from the trust  the trust must pay super for any of its employees (this may include the trustee if they are also employed by the trust).

13. T AXATION No matter what type of business structure is chosen, under Australian law, every small business must pay tax on income generated. Taxes and procedures that businesses are subjected to include: Income Tax BAS – Business Activity Statement (monthly or quarterly – depending on turn-over) CGT – Capital Gains Tax PAYG – Pay as you go FBT – Fringe Benefits Tax Superannuation Guarantee (currently 9.5% of gross wage) GST (currently 10%) Medicare Levy (currently 2% + a surcharge % if you don’t have private health cover and you are above a set income)

14. T AX R ATES The following rates for 2015–16 apply from 1 July 2015. Taxable incomeTax on this income 0 – $18,200Nil $18,201 – $37,00019c for each $1 over $18,200 $37,001 – $80,000$3,572 plus 32.5c for each $1 over $37,000 $80,001 – $180,000$17,547 plus 37c for each $1 over $80,000 $180,001 and over$54,547 plus 45c for each $1 over $180,000 The small business company tax rate has been reduced from 30% to 28.5% for income years commencing on, or after, 1 July 2015. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts. The corporate tax rate will remain at 30% for all other companies that are not small business entities.

15. BAS The business activity statement (BAS) is a tax reporting requirement for businesses issued by the ATO on either a monthly or quarterly basis. It’s used for reporting and paying goods and services tax (GST), pay as you go (PAYG) instalments, PAYG withholding tax and other tax obligations. When you register for an Australian business number (ABN) and GST, the ATO will automatically send you a BAS when it is time to lodge. All businesses registered for GST are required to lodge a BAS by the due date.

16. C APITAL G AINS T AX A capital gain or capital loss on an asset is the difference between what it cost you and what you receive when you dispose of it. You pay tax on your capital gains. It forms part of your income tax and is not considered a separate tax – though it's referred to as capital gains tax (CGT). Rules for this keep changing!!

17. PAYG Pay as you go (PAYG) instalments require you to pay incremental amounts towards your expected end of year income tax liability. You can generally choose between two options for calculating and paying your PAYG instalments, which will apply for the remainder of the income year: Option 1: Instalment amount This option is a pre-determined amount calculated by the ATO using the business and investment income from your most recently assessed income tax return. The benefit of this method is that you'll know the amount of your instalment each quarter, which may help you plan and budget for the payment. Option 2: Instalment rate This option allows you to calculate your PAYG instalment amount based on your actual income multiplied by a rate that the ATO provides you. The benefit of this method is that the amount you pay reflects your business and investment income for the quarter. You may prefer this method if your income fluctuates. eg seasonal variations

18. F RINGE B ENEFITS T AX Fringe benefits tax (FBT) is a tax employers pay on certain benefits they provide to their employees, eg car, entertainment, including their employees’ family or other associates. The benefit may be in addition to, or part of, their salary or wages package. If you are a director of a company or trust, benefits you receive may be subject to FBT. Fringe benefits tax is separate to income tax and is calculated on the taxable value of the fringe benefits provided. The FBT year runs from 1 April to 31 March.

19. S UPERANNUATION G UARANTEE (SG) Super is money you pay for your workers to provide for their retirement. Generally, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of their wages. The minimum you must pay is called the super guarantee (SG): The SG is currently 9.5% of an employee’s ordinary time earnings. You must pay SG at least four times per year, by the quarterly due dates. You pay into a complying super fund. Most employees are eligible to choose which fund you pay into. If you don’t pay the SG on time, you may have to pay the super guarantee charge.

20. M EDICARE L EVY Medicare gives Australian residents access to health care and is partly funded by taxpayers who pay a Medicare levy of 2.0% of their taxable income. The Medicare levy surcharge (MLS) is designed to reduce the demand on the public Medicare system. You will be required to pay the MLS if your income for MLS purposes is above the base income threshold and you or your family do not have an appropriate level of private patient hospital cover. This applies unless you are exempt from paying the Medicare levy and your dependents are also exempt or have an appropriate level of private cover. M EDICARE LEVY SURCHARGE

21. Q UESTIONS TO TRY : Essentials pg 154&155 Haese pg 187&188 This section has been quite wordy I know, but again you will notice that the calculations are just percentages. You will always be given the tax table required, or the Medicare levy etc you will not be expected to remember these, probably GST = 10% is a reasonable one to remember. The other types of questions you need to be able to answer are questions like, why would a small business choose a company structure over a sole trader structure? ie you need to know the pros and cons of each type of structure

22. M ORE D ETAILED INFORMATION : https://www.ato.gov.au/