Love it or hate it, it is undeniable that tax is one of society's most vital functions. It doesn't only help pay for hospitals, schools, roads, and other government-funded projects and grants, but it also comes with many advantages. So if you're planning to set up a business, it's wise that you learn the basic tax terms and definitions.
With that said, let's take a closer look at income tax, fringe benefit taxes, capital gains, payroll, and land taxes, as well as customs and stamp duties, which are some of the basic tax terms you should know for yourself or your business.
Income Tax is the primary source of revenue for the Australian government, accounting for 67% of federal government revenue. As an employer, part of your responsibility is to withhold income tax from your employee's wages and salaries. By doing this, you help out your staff reduce the risk of a financial disaster.
Fringe Benefits Tax (FBT)
Fringe Benefit Tax is a tax employers pay on certain benefits they give out for their staff or their employees' associates or family. Usually, these taxes apply to various factors such as company cars, health insurance, food allowances, and more.
FBT is separate from income tax and the calculation of it depends on the type of benefit given.
Capital Gains Tax
Imagine you decided to sell or dispose of a particular asset, the imposed tax on the capital gain you make from the sale of that asset is the Capital Gains Tax or CGT. The calculation of CGT is based on the difference between the purchase price (cost base) and the sale price of the asset.
Payroll Tax is a tax based on the salary or wages paid to your employees, including some contractors. A business is required to register and pay for payroll tax if it exceeds the monthly Australian taxable wages within the area of the jurisdiction where the business operates.
Land Tax is a tax levied on the value of land and property holdings on owners in all Australian states over a specific threshold. A business owner with properties must pay land tax regardless if income is earned from the property or not.
Customs Duty also known as import duty, is a tax required on goods and services imported in Australia. It is based on the customs value of the imported goods or services, which includes the cost of the goods, freight charges, insurance, and any applicable international handling costs.
Stamp Duty or transfer duty is a tax required on certain transactions such as property, vehicles, etc. In the context of property transactions, stamp duty is typically payable when buying or transferring real estate ownership, including residential and commercial properties. The calculation of stamp duty is based on the purchase price or market value of the property, whichever is higher.
Ready to learn more tax terms? Check out our Tax Basics course!
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