Australia is a nation of small business owners, and the accessibility of the internet has made it easier than ever to launch your own business. Running an online business is a great way to expand your customer base, reduce overheads and increase profits. Plus, it costs very little to get started, so an ecommerce business is a good way to test the waters as an entrepreneur.
Whether it’s your first business or simply the next brand in your portfolio, one thing remains the same – the Australian Taxation Office (ATO) wants their cut. Meeting your tax obligations is a serious part of trading as an online business. Your company is subject to the same requirements as other Australian businesses, and you may find yourself dealing with the ATO if you don’t comply. To help avoid the hassle, we’re going to look at some of the common tax disputes encountered by online businesses and what you can do to protect yourself from the ATO.
What Taxes Does an Online Business Need to Pay?
Starting an online business is a tempting prospect for many people. The barriers to entry are extremely low, and an online business can reach people from all over the world, so you could have huge earning potential. However, while your business might exist entirely online, it’s still subject to the same taxation rules as other Australian businesses. As an ecommerce business, you may still need to pay:
- Income tax
- Goods and Services Tax (GST)
- Capital Gains Tax (CGT)
- Employee income tax
- Fringe benefits tax
- Luxury car tax
- Wine equalisation tax
That’s a long list, but the good news is that most types of tax can now be paid online. Any remaining tax obligations can then be paid when you submit your quarterly Business Activity Statements (BAS). This simplifies the process and helps you keep track of your tax obligations.
Common Business Tax Disputes in Online Businesses
Each year the ATO carries out in-depth analysis of online businesses operating in Australia. It uses data to compare similar businesses and gauge how you should be performing, which helps the ATO figure out whether you are meeting your tax obligations. In many cases, disputes with the ATO arise for one of four reasons:
- Incorrect income tax declarations. Just like with your personal finances, businesses are required to declare all assessable income. Companies are charged marginal tax rates that vary based on the type of business you’re operating. You can read more about income tax for companies on the ATO website.
- Claiming deductions you aren’t entitled to. Online businesses are usually able to claim tax deductions on the costs of doing business. This can greatly offset your tax liability, so it may be tempting to inflate your deductions. This is known as refund fraud and it carries criminal consequences. Business owners should never inflate deductions, and you should always make sure you have evidence to substantiate any deductions that you choose to claim.
- Mistakes on your BAS. It’s common for business owners to make mistakes when lodging your BAS. Mistakes on your BAS can be rectified within 4 years. If they aren’t rectified, you may find yourself owing GST or employee income tax.
- Tax related to company structure. Australia offers a number of business structures you can use for your online business. While most of these are subject to straightforward tax requirements, many businesses choose to establish within a trust deed, which carries additional tax restrictions. If your business operates within a trust, it’s important to ensure you are distributing income correctly, and that tax is paid on any undistributed income.
Deductions You May Be Able to Claim
Online businesses are generally able to claim deductions for reasonable operating expenses, including:
- Advertising costs
- Bad debts
- Business travel
- Fringe benefits tax
- Depreciating assets
- Salaries, wages and employee entitlements
- Accounting expenses
- Insurance premiums
- Business premises expenses, and more
Australian businesses are required to keep detailed financial records for a period of at least 5 years. This means you should be able to provide proof of any deductions you’re claiming when lodging your income tax return. These records will also come in handy if the ATO ever asks you to justify your deductions.
What to do During a Business Tax Dispute
Navigating Australia’s business taxation system can be a challenge. If you find yourself dealing with the ATO for any reason, it’s important to seek professional advice from a tax lawyer Brisbane wide as soon as possible. Failing to meet your tax obligations may carry serious penalties, including fines and jail time. Retaining legal representation allows you to effectively defend your position and reach the best possible outcome.
You may also be entitled to dispute or object to an ATO decision regarding your tax liabilities and entitlements. If the ATO has already reached a decision, a taxation lawyer can assist you in disputing the ruling and reaching a more appropriate outcome.
Resolve Online Business Tax Disputes with Help from FP Lawyers
Dealing with the ATO can be a confronting experience. While the ATO may be lenient about honest mistakes, failing to meet your tax obligations could spell the end of your online business. To avoid that outcome it’s important to talk to our team at FP Lawyers as soon as the ATO contacts you.
FP Lawyers are experienced taxation lawyers working throughout Brisbane, the Gold Coast and Sunshine Coast. Taxation law is one of our longest-standing specialisations, so we have decades of experience in helping businesses navigate the tax system. If you need tax advice Brisbane wide regarding a ATO tax audit, dispute, negotiation or objection, we can provide you with expert advice to help you resolve the situation. You can contact us online to make an appointment or call us to book a confidential consultation.
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