My wife and I are looking to buy a small shop and I'm putting together some information on income and costs. I'd like to know what sort of taxes a small business pays. I know GST is primarily an administrative effort as that's paid by the customer, but what other taxes are there?
The shop won't make profit - only just enough to pay total wages of about $80000.
TIA.
yes, good point. it is a very small shop - so there's no minimisation going on there - just a small scale shop open 4 days a week that works really well but. Thanks.
Yes, I've got all the property costs. They're the easy part!
Just make sure the property part is all sorted - if you're buying the actual shop space, "going concern" is a must, if not, make sure the lease is in order so you don't buy it and then get kicked out a few months later by the landlord.
Other than that - GST and income tax are the main ones. If you have wages, then you'll also be paying payroll tax, super (which is kind of like a tax since the ATO enforces it), PAYG on behalf of your employees (if applicable).
Depending on the business you might also have other govt/non-govt licence fees.
I don't think this business will meet the thresholds in order to be required to pay payroll tax.
@spiff: I was thinnking that was the case. Not that the Australian government website on this makes it very clear. :)
Surely you would discuss the opportunity to purchase the shop with your accountant.
The seller (or their agent) should provide you with the current trading figures, which you should ask your accountant to review.
Otherwise, how can you justify the purchase cost?
We've got all those figures and it's a very simple business.
And yes, we're going to do talk to an accountant, but just getting some basic figures together for my wife and I first. And it's always best to hand the accountant a well thought out spreadsheet!
Please bare in mind that in theory, GST is paid by the customer. In reality, it is paid by you.
Example) If you sell a bottle of drink, or even offer a service of some kind and the most your customers are willing to pay is $10. You can't then charge $10 + GST. The customer doesn't care about GST they only care about the final price. So you end up charging the customer $10 and paying $.90 in GST leaving you only $9.10.
Two of the many things to consider when buying a small business:
Best of luck :)
Thanks.
We're buying the business as a going concern so it will remain as a company.
The books are hard to fudge as they are all in paper and go back quite a few years. The current owners are retiring and were actually just going to close it down as they actually love the business (it's a well known business in our town) and didn't want it going into the ground. They only agreed to sell it because they trust my wife to keep it going strong and actually improve it.
So this case is a bit simpler than most.
We're buying the business as a going concern so it will remain as a company.
That statement doesn't make any sense. "Going concern" in a contractual sense would usually relate to GST treatment, which is a separate issue to the entity which the business is being operated in. It's a bit of a null comment anyway as the vast majority of businesses which are actively trading would be a going concern for GST purposes.
I take it from your comment that you may be taking over the business by buying the shares in the current trading entity and appointing yourselves as directors, rather than buying the assets of the business in your own capacity/your own entity? If so this is a very risky approach because you're also inheriting any liabilities of the company. There may be liabilities that the seller has not disclosed to you, or even liabilities that they aren't aware of.
For what it's worth, the vast majority of people who purchase a business in the manner you've described (i.e. purchasing a business you have no familiarity with behind the scenes) will purchase it in their own name or entity rather than buying out the seller's shares in the trading company. You should get some legal and financial advice before committing to this course of action.
Thanks. I'm sure the risk is low but I'll follow your advice anyway. Cheers.
Small business is a lot of work for $80K salary between 2 of you. Much simpler ways to make that much working for the man
It's just my wife - I'd maybe just do the bookkeeping on the way home from work. And the shops open 4 days a week and a stress free, already very successful boutique shop.
GST need to be paid on sales, but you can get GST credits on purchases as long as you get proper tax invoices from suppliers. Income tax need to be paid on profit made at the end of the year. Payg also need to be reported along with GST in activity statement, I'm guessing in your case maybe every 3 months? Super 9.5 percent of weages need to be paid to your own super usually every 3 months. Good luck.
Thanks.
Well that's one great way to minimise taxes.
Have a read of the ATO website. They've got a lot of information (including fairly easy to understand videos) on business structures, tax implications of each and other considerations including superannuation and reporting requirements.
Don't forget all your property related costs!
Edit: Also read up on purchasing a going concern. I imagine it will be relevant in your scenario.