Tax and Accounting for Small Business Owners in Australia: Where to Start
Tax is not a topic to leave for later
Many people start a business thinking “tax can wait until the end of the year.” The problem is that the Australian tax system requires you to report, and sometimes pay, during the year — not just when you lodge a tax return. Understanding this from the outset helps you avoid cash-flow surprises and penalties.
This article gives you an overview of the main tax obligations — enough to let you work effectively with an accountant, not enough to do everything yourself.
Your business structure affects how you are taxed
How you are taxed depends on your business structure:
Sole trader: Business income is your personal income. You report business income in your personal tax return and are taxed at personal income tax rates. If the business makes a substantial profit, you may have to pay PAYG (Pay As You Go) instalments each quarter.
Partnership: Income is divided among the partners by their share percentages, and each partner reports their share in their personal tax return. A partnership lodges its own tax return but does not pay tax itself — the tax is assessed on each partner.
Company: A company pays company income tax separately from the personal tax of its shareholders. Shareholders take a salary (taxed as personal income) or receive dividends (which carry franking credits). This is why accounting for a company is more complex than for a sole trader.
If you are not yet sure which structure suits you, read the related guide on choosing a business structure in Australia first.
GST — Goods and Services Tax
GST is a consumption tax that applies to goods and services in Australia. Eligible businesses must register for GST, collect GST from customers, and pay the difference to the ATO after deducting the GST they paid to suppliers.
When you need to register for GST: The ATO sets a turnover threshold — if your turnover reaches, or is expected to reach, that threshold, you must register. If you are below the threshold, you can choose whether or not to register. Check the current threshold at ato.gov.au/business/gst.
Why you need to know this threshold: If you are registered for GST, you must add GST to what you charge customers and pass it on to the ATO — this is not your income. If you forget to register, or fail to register after passing the threshold, you still owe the ATO the GST, whether or not you collected it from customers.
Not every sale includes GST: Some goods and services are “GST-free” (such as basic fresh food, education, and some health services). Your accountant will help you work out which categories apply to your business.
BAS — Business Activity Statement
A BAS is the periodic reporting form you lodge with the ATO. It covers:
- The GST you have collected and paid (to work out the amount payable or refundable)
- PAYG withholding (if you have employees)
- PAYG instalments (if applicable)
How often you lodge a BAS: This depends on the size of your business — it may be monthly, quarterly, or annually. The ATO sets your cycle when you register, or your accountant will advise. Check ato.gov.au for the specific deadlines that apply to you.
A late BAS carries penalties: Failing to lodge a BAS on time results in penalties and interest. This is why you need a system to remind you of deadlines, or an accountant to track them.
Superannuation — compulsory when you have employees
If you employ staff, you have an obligation to pay superannuation (super) for them. Super is not optional — it is a compulsory legal obligation under the Superannuation Guarantee.
The current super rate is set and published by the ATO — check it at ato.gov.au/business/super-for-employers. This rate changes according to a legislated schedule and is updated periodically.
The consequences of not paying super on time: The ATO has a separate enforcement mechanism for super — not just a late penalty but also the Superannuation Guarantee Charge (SGC), which is calculated in a more complex way. Many business owners in financial difficulty cut super first — an expensive mistake.
When you have employees: Single Touch Payroll (STP)
When you start paying employees, you need to report wage information, PAYG tax, and super to the ATO through the STP system after each pay run. Most modern accounting software (Xero, MYOB, QuickBooks) has STP built in.
Record keeping
The ATO requires you to keep financial records for a set period — invoices, receipts, contracts, and payroll records. The specific period is set by the ATO at ato.gov.au.
Build a record-keeping habit from day one, even something as simple as a Google Drive folder named by month — it is far easier than searching for a receipt from three years ago when the ATO asks for an explanation.
Accounting software
Most small businesses in Australia use one of three main packages: Xero, MYOB, or QuickBooks. All three handle GST, BAS, and STP, and can connect directly to the ATO.
Your accountant will usually have a preferred package — ask them before you choose, so you do not end up using one system while they use another.
Next steps
Tax is an area where it pays to involve a professional from the start. See the related guide on when you need an accountant, lawyer or migration adviser to learn how to prepare for your first meeting with an accountant.
And to avoid the most common mistake in managing business finances, see the related guide on why you should separate personal and business money.