As a business owner, does it ever feel like you’re constantly paying taxes? Whether it’s for Goods and Services Tax (GST), Income Tax, or Pay As You Go (PAYG) Instalments, it can sometimes feel like there’s always another bill from the Australian Taxation Office (ATO) waiting to be paid.
So, what actually are all these things, and how do they differ from each other?
Goods & Services Tax:
GST is a 10% tax on most goods, services and other items sold or consumed in Australia. As a business owner, if you’re registered for GST, you charge this additional 10% on top of your prices. It’s a tax you collect from your customers, but it’s not your money. You’re simply acting as a middleman between the consumer and the ATO. Thankfully, it’s not all bad news! If you’re registered for GST, you are also allowed to claim back the GST included in the price of goods and services that you buy for your business.
Who needs to register for GST?
Not all businesses are required to register for GST. If your business has a GST turnover of $75,000 or more ($150,000 for non-profits), you’re required to register for GST. Also, anyone who provides taxi travel, including ride sourcing, must be registered for GST.
What do you need to do?
If you’re registered for GST, you’ll need to lodge a Business Activity Statement (BAS). You can file it quarterly, monthly, or annually, depending on your business size and your preferences. In your BAS, you’ll report the amount of GST you’ve collected from customers (GST on Sales), and the amount you’ve paid on your business expenses (GST on Purchases). The difference gets paid to the ATO, unless your GST on Purchases is more than your GST on Sales, in which case you’ll be eligible for a refund from the ATO.
Important Tip! Don’t consider the GST you collect from customers as income. For example, if you sell a product for $11,000 (including $1,000 GST), your income is actually $10,000, because that $1,000 goes straight to the ATO.
Some items are GST Free. Learn more about these on the ATO website!
Income Tax
Income tax is the tax on your earnings – whether that’s from wages, business profits, or investment income. In Australia, the tax rates range from 0% to 45%, depending on how much you earn.
Taxable Income | Tax on this income (2025 income year) |
$0 - $18,200 | Nil |
$18,201 - $45,000 | 16c for each $1 over $18,200 |
$45,001 - $135,000 | $4,288 plus 30c for each $1 over $45,000 |
$135,001 - $190,000 | $31,288 plus 37c for each $1 over $135,000 |
$190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
How it works:
Both individuals and businesses report their income and tax-deductible expenses to the ATO annually through a tax return. After assessing your income and allowable deductions, the ATO calculates your tax liability. The money collected from income tax is used to fund essential public services like healthcare, education, roads, and welfare programs.
For employees, this tax is often automatically withheld from your salary, which means your employer sends the tax directly to the ATO on your behalf. This system helps you spread out your tax burden over the course of the year, rather than getting hit with a massive bill at tax time.
Pay as You Go Instalments
If you’re a business owner or a high-income earner, you may have heard of (or be paying) PAYG instalments. These are essentially prepayments of your income tax. Instead of waiting until the end of the year to pay your tax, you make smaller, regular payments to the ATO throughout the year.
The ATO typically sends you a notice to start PAYG instalments if your taxable income or tax payable exceeds a certain threshold. Your instalments are based on your previous year’s income, and you pay them quarterly. This allows the ATO to collect tax as you go, rather than hitting you with a large amount at the end of the year.
Key Differences Between GST, Income Tax, and PAYG Instalments
Tax Type | What it is | Who pays it | Rate | How it works |
GST | A 10% tax on goods and services sold or consumed in Australia | Customers pay GST to businesses as part of the price they pay for goods and services. Businesses collect this GST from customers and pay it to the ATO. | 10% | Businesses collect GST from sales and pay it to the ATO (after deducting any GST they have paid to other businesses for goods and services) |
Income Tax | A tax on income (wages, business profits etc.) | Individuals and businesses | Staggered,ranging from 0% to 45% | Paid annually through tax returns. Employers withhold tax on wages, which reduces individuals annual tax liability. |
PAYG Instalments | Prepaid income tax for individuals and businesses | Businesses and high-income earners | Based on prior year’s income | Quarterly payments based on estimated income or tax liability. These also reduce the annual tax liability. |
So, which one do you need to worry about?
As a business owner, you’re likely juggling both GST and Income Tax, and if your business is making a certain level of income, PAYG Instalments might be part of your routine as well. By understanding the differences and how each one works, hopefully you can stay ahead of your tax obligations!
The key takeaway? GST is not your money – it’s collected from your customers on behalf of the ATO. Income tax is what you pay on what you earn, and PAYG instalments are simply an advance payment of that income tax. The more you understand these taxes, the better you can manage your business finances and keep things running smoothly.
If you have any questions, please do not hesitate to reach out and contact us – we’re here to help!
