How to Reduce Tax LEGALLY by Paying Less On Your BAS (Australia)

Summary

The video explains how small business owners can reduce their Business Activity Statements (BAS) by examining three key areas: GST, PAYG withholding, and PAYG income tax. It emphasizes the importance of checking whether GST is calculated on a cash or accrual basis, reviewing employee and director wages, and adjusting PAYG income tax based on current profits. The speaker advises businesses to reassess these factors regularly, especially when business conditions change, and suggests payment plans for those struggling to meet BAS obligations.

Takeaways

• 💼 Small businesses often pay too much tax through Business Activity Statements (BAS) each quarter.
• 📄 BAS covers three main taxes: GST (Goods and Services Tax), PAYG withholding (employee tax), and PAYG income tax (company tax).
• 🧾 GST can be paid either on an accrual basis (when you invoice clients) or a cash basis (when you receive payment). Cash basis is usually better for cash flow.
• 👨‍💼 PAYG withholding relates to employee taxes, including the tax on your own wages if you pay yourself a salary.
• 💸 PAYG income tax is a prepayment of your company’s tax based on last year’s profits, adjusted for inflation.
• 📉 To reduce your BAS, review if you're paying the correct GST, PAYG withholding, and PAYG income tax based on your current business performance.
• ⚖️ If your business structure or financial situation has changed, you might be overpaying taxes.
• 💰 Check if your business is still generating the same profit as last year. If not, you might be able to reduce your PAYG income tax payments.
• 🤝 If you’re struggling with high BAS payments, you can set up a payment plan with the Tax Office.
• 🧐 Regularly reviewing and adjusting your BAS components can help improve cash flow and ensure you're not overpaying.

Q & A

What is the purpose of a Business Activity Statement (BAS)?

A Business Activity Statement (BAS) is a quarterly or monthly report lodged with the tax office to allow the government to collect taxes from a business. It helps avoid a large tax payment at the end of the year by paying taxes incrementally.

What are the three main types of taxes covered in a BAS?

The three main types of taxes covered in a BAS are GST (Goods and Services Tax), PAYG withholding (employee tax), and PAYG income tax (company profit tax).

What is the difference between GST on an accruals basis and a cash basis?

GST on a cash basis means you pay GST when you actually receive the money from your clients, while on an accruals basis, you pay GST when you issue an invoice, even if you haven't received the payment yet.

Why might cash basis GST be better for cash flow management?

Cash basis GST is better for cash flow management because it allows you to only pay GST when you actually receive the money, preventing situations where you owe GST before being paid by your clients.

How can PAYG withholding affect your BAS amount?

PAYG withholding affects your BAS because it includes the employee taxes you are required to withhold and pay to the government. If you have many employees or pay yourself a high salary, your PAYG withholding will be higher.

What should you consider regarding your own wages when reviewing PAYG withholding?

When reviewing PAYG withholding, consider whether your business profits justify the wages you're paying yourself. If your business is not generating enough profit, you may need to lower your wage to reduce taxes.

How is PAYG income tax calculated?

PAYG income tax is calculated based on your company's profit. The tax office estimates your current year tax based on last year's profit and adds a small margin for inflation. This determines the amount of income tax you prepay.

What should you do if your business is generating less profit than the previous year?

If your business is generating less profit than the previous year, you should inform the tax office and adjust your PAYG income tax payments to avoid overpaying.

What are the potential benefits of reviewing your BAS calculations regularly?

Regularly reviewing your BAS calculations can ensure that you are not overpaying taxes, that your GST is reported correctly (cash or accrual), and that your PAYG withholding and income tax reflect the current state of your business.

What can you do if you're struggling to pay your BAS on time?

If you're struggling to pay your BAS on time, you can arrange a payment plan with the tax office, but it's important to meet the current and future BAS obligations to avoid penalties.