Income tax is charged on assessable income. Assessable income is calculated thus: gross income less allowable deductions and rebates if any. Deductions include business expense such as cost of stock, wages paid, electricity, bad debts, rent, any prior years losses etc. Rebates include items such as the schools education cost rebate, entrepreneurs tax offset etc.

There are 5 main categories that tax payers fall into; individual, sole traders, partnerships, trusts, companies.

Individuals

You can check what your marginal tax rate is by refering to income tax tables:

Resident Tax Rates for 2011 - 2012

Taxable income	Tax payable on this income
$1 - $6,000	$0
$6,001 - $37,000	15 cents in each dollar over $6,000
$37,001 - $50,000	$4,650 plus 30 cents in each dollar 0ver $37,000
$50,001 - $80,000	$8,550 plus 30.5 cents in the dollar over $50,000
$80,001 - $100,000	$17,550 plus 37.5 cents per dollar over $80,000
$100,001 - 180,000	$24,950 plus 38 cents per dollar over $100,000
$180,000 +	$54,550 plus 46 cents per dollar over $180,000

Non Resident Tax Rates for 2010 - 2011

Taxable income	Tax payable on this income
$1 - $37,000	29 cents per dollar earned
$37,001 - $50,000	$10,730 plus 30 cents in each dollar over $37,000
$50,001 - $80,000	$14,630 plus 30.5 cents per dollar over $50,000
$80,001 - $100,000	$23,780 plus 37.5 cents per dollar over $80,000
$100,001 - 180,000	$31,280 plus 38 cents per dollar over $100,000
$180,001+	$61,680 plus 46 cents per dollar over $180,000

For more information visit the ATO website at Individuals Tax rates

Sole Traders

A sole trader does not have to complete a seperate tax return for their business. They use additional schedules within their tax return to report their business income or loss.

Partnerships

A business being run as a partnership must lodge a partnership tax return 2010 Partnership Tax Return to show all income and deductions which were claimed as expenses during the course of the business year, and how any profit derived was shared amongst members of the Partnership. Each individual partner will pay tax upon their share of the partnerships net income, which they declare in their individual tax return.

Trusts

A business being run as a trust must lodge a trust tax return 2010 Trust Tax Return to show all income and deductions which were claimed as expenses during the course of the business year, and how any profit derived was shared amongst members of the Trust. Each individual member will pay tax upon their share of the trust distributions, which they declare in their individual tax return.

Companies

A company is a legal entity in its own right, and will generate its own taxable profit or loss. Each company must lodge a 2010 Company Tax Return. A company currently pays tax at 30 cents per dollar of assessable profit earned during the business year.

Record keeping

Great accounting records are an important basic requirement for any small business. Up to date and accurate financial records provide the vital management information needed to monitor and grow your enterprise.

GST was introduced 11 years ago now, but many operators still produce electronic shoe box accounting records. Such records should not be relied upon when making financial or strategic management decisions.

The graphs above, constructed from data taken from a nationwide survey, demonstrates the importance of using up to date and accurate information. The higher the quality and accuracy of accounts, and the frequency of account production, the higher the business survival rate.

Such records are also useful when approaching financiers and when selling your business. The ATO also requires you to maintain records for up to seven years (for a company).

Accounting Software For Small Business

One of the biggest mistakes small business owners make is that they purchase accounting software beyond their business needs and level of accounting skill. This can lead to considerable frustration and records that amount to nothing more than a 'computerized shoebox'. Such accounts are very expensive to process.

With so many software options available it is easy to become confused. They range in functionality and sophistication with a price tag to match. To assist you we provide the following guidelines:

• If you don't understand double entry accounting (i.e. debits, credits and journal entries) then avoid sophisticated accounting software programs. If you need to use such a program then consider a training course at a local TAFE that runs for around 14-20 hours at a cost of around $350. This is money well spent and is tax deductible if you go on and start your business.
• Don't buy software beyond your business needs. If you don't need inventory or a fully integrated general ledger system don't buy a 'Mercedes' when you only need a 'Magna'
• Your software should be compatible with our general ledger system to allow easy transfer of electronic data. This can save time, money and assist with meeting the various lodgement deadlines.

Let's briefly have a look at one of the simplest and most popular accounting software programs in Australia.

If you simply need a 'cashbook' program to track your receipts, payments and GST we strongly recommend Cashflow Manager. It looks and operates like a manual cashbook complete with a spreadsheet or column layout and it requires no understanding of accounting, debits, credits or journal entries. At around $249 it represents excellent value for money. The program provides business templates that will help you to get your books set up. The templates automatically establish columns for certain business types.

Reconciling your bank account(s) is also a very simple process. If you have internet banking you can download your bank statements and import the data to save even more time. You can have multiple bank accounts, and credit cards in a single business,and the comprehensive reports both explain your business results, and make preparation of your BAS very easy. The program includes the debtors side of 'Invoice Manager' that both lets you generate Tax Invoices, and track your debtors (customers who owe you money) plus it will produce Customer Statements.

If you have staff you can add 'Wages Manager' for an additional $249. Wages Manager is terrific value and once set up is very simple to operate. Wages Manager allows you to process pays, print pay slips, produce Annual PAYG Payment Summaries, and also track staff entitlements. Periodic updates are produced to allow you to keep up with income tax table alterations.