Common Business terms and acronyms and their meaning

Whether you are new to Business in Australia or been in business for a few years, there are some terms and acronyms that can be confusing. What's more, depending upon what government department you are working with, the term could have a completely different meaning.

Here, I aim to defuse the mystery and write a list (albeit not comprehensive) of the common terms and acronyms that get our clients a bit confused.

For ease of reference, I have used bold italics on terms / acronyms that are explained further in this support file.

If there is a term or meaning that you would like me to add to this file, please reach out to us in our online chat and we'll do our best to resolve as soon as possible.

Of course, everything in this file is general advice and is for your information purposes only. For specific advice related to your business and circumstances you should seek advice from your Tax Professional.

Business Structures

Here are the common business structures we have here in Australia.

Sole Trader

An individual trading as themselves in a business. Eg Clark Kent. Their business ABN is linked directly to their personal, individual TFN. There is no limit to their liability for business expenses, assets or liabilities, being an unlimited liability business structure.

A Sole Trader does not need to register a business name with ASIC if they only trade as their name or trade as their name + trade. Example: "Clark Kent Private Investigator" would not need a business name registered. However if Clark Kent wanted to trade as "Superman Investigations" they would need to have the business name registered with ASIC and linked to their ABN.

Here's a little video I made to explain what being a sole trader means to you:

Partnership

Partnerships are two or more individuals (to a maximum of 20) who trade together. Often times, this will be a 'family partnership' (between spouses) or for certain industries such as pharmacies, doctors.

The partners share the income in proportion to their partnership agreement (usually equally unless expressly differed). Each partner is liable for any debt or assets of the business in an unlimited liability capacity.

Similar to a sole trader, if the name a partnership intends to trade in is the partners names, no business name is required to be registered with ASIC. However, if the trading name will be different, and not identify the business owners specifically, then a business name will need to be registered with ASIC and linked to the entity's ABN.

Companies

Companies are registered with ASIC, and governed by The Corporations Act 2001 (Cth).

Companies have what is called limited liability and provide a stronger level of individual asset protection to the business owner.

Companies have several participants:

• Directors: the decision makers of the company. They have the responsibility to make the decisions for the company in the best interest of the company. It's kind of like being a parent to a child who never becomes 18.
• Secretary: required to keep the registers of shareholders, directors up to date with ASIC and legal requirements to maintain compliance with The Corporations Act 2001 (Cth). This field is legal in nature and often times for larger entities will be held by a registered professional (eg a Chartered Company Secretary).
• Shareholders: the owners of the Company. Depending upon the 'class' of share held will result in the type of voting rights and profit distribution.

Two main types of companies we usually see:

1. Proprietary Company (PTY LTD)

Also known as a private company as it's owned and usually operated by the business owners. Identified by a PTY LTD after their business name. Maximum of 50 shareholders.

2. Public Company (LTD)

Available to the public to invest and has unlimited number of shareholders. Some public companies will be listed on a stock exchange, whilst others may be limited by guarantee (often used for clubs and means the liability is limited to the value of the membership fees paid).

Trusts

I like to think of a trust as a big financial love triangle.

Settlor: the person forming the trust on behalf of the trustee, beneficiaries and appointers. They must not have any ability to be a beneficiary of the trust. Usually an accountant or lawyer. They ensure the "settled sum" (usually a nominal fee say, $10) is paid into the forming bank account.

Appointer: The appointer is the most important role in the trust as they appoint the trustee (and can also remove them).

Trustee: can be an individual or corporate (i.e. company). We generally recommend corporate as an additional risk management.

Beneficiary: the individuals or entities where the profits of the Trust will be distributed at tax time.

A trust can be trading or investment. Trading as a business, or investment as in receive the distributions from a trading entity as and when made. Generally, we advise against trading a trust as a business because all profits must be distributed 100% each year which may not be the best tax effective strategy for you.

Three main types we generally see:

• Discretionary Trust: profits distributed in accordance with the Trustee's determination based upon the available beneficiaries listed in the Trust Deed.
• Fixed Unit Trust: profits distributed in proportion to the number of units held by a beneficiary.
• Testamentary Trust: these are trusts setup to distribute a deceased person's estate. Usually of complex asset nature or where the beneficiaries must meet a certain age prior to being entitled to receive the profits.

Liability Structures

Unlimited Liability

Each business owner is equally liable for any debt in the business, and if it fails, the business owner's personal assets are at risk. Personal assets can be seized in order to cover the balance owed to creditors in the event of a business windup. If there are not enough personal assets, this might lead to personal bankruptcy.

In practicality, if a business is operating as a partnership, the partner with the most personal assets has the highest risk.

Limited Liability

This is a condition of business structure whereby the shareholders are legally responsible for the debts of a company only to the limit of the nominal value of their shares. Simply meaning, if you have $1,000 of fully paid shares (or capital), your limit of liability is to that $1,000.

It means that your private assets are not at risk if a business fails.

Federal Government Agencies

Australian Taxation Office (ATO)

Formal website: ato.gov.au

The ATO is responsible for collecting federal taxes and overseeing compliance in this area including:

• Goods & Services Tax (GST)
• Fringe Benefits Tax (FBT)
• Income Tax
• Pay as you go withheld (PAYGW) from wages
• Employer Superannuation payments to employees

They are responsible for issuing:

• Tax File Numbers (TFN) to individuals and businesses
• Director Penalty Notices (DPN) for Late lodgement of BAS
• Superannuation Guarantee Charges (SGC)
• Notice of Assessments
• Tax Residency Certificates for foreign governments

They have the power (amongst other things) to:

• Garnishee bank accounts for uncollected / unresponsive measures for tax debt;
• Take you to court if they think you've broken the law

A note about these various taxes /systems that the ATO covers:

Tax File Number

A Tax File Number is unique identifying number to a tax payer.

Goods & Services Tax GST

GST is charged on most goods and services in Australia at a rate of 10%.

Goods that aren't subject to GST are fresh produce, medication etc; products exported overseas.

Services that aren't subject to GST are most medical services (some but not all natural therapies); services exported overseas.

Fringe Benefits Tax (FBT)

Is a tax on benefits provided to employees of a business that is a non-cash benefit (eg car parking, entertainment, motor vehicles, living away from home allowance, travel, debt waiver, loans granted, expense payments, housing).

There's two types of benefits:

Type 1: Employer is entitled to a GST credit with respect to the provision of the benefit.

Type 2: Employer is not entitled to a GST credit with respect to the provision of the benefit.

Most common benefit type we see is Type 1.

For ease of understanding (the calculation is much more complicated but this is a rough practical guide), for every dollar a business spends on this kind of benefit, they pay a dollar in FBT unless the employee co-contributes.

For example, a motor vehicle (type 1) costs the business $50,000 to purchase. The employee /director gets to use the vehicle as and when they want private and business use. They don't maintain a logbook^. So, we calculate the FBT as 20% of that vehicle cost = $50,000 x 20% = $10,000 per annum. The FBT per year would be just under $10k to the business.

Pay as you Go Withheld (PAYGW)

This is tax deducted from employee wages and paid directly to the ATO by the employer. Payments are either weekly, monthly or quarterly depending upon how much is withheld each financial year^.

Pay as you Go Instalment (PAYGI)

Not to be confused with PAYGW, the PAYGI scheme is for the business owner / individual tax payer's estimated income tax for the financial year ahead. It is usually paid quarterly in advance for the estimated tax the ATO has calculated for your income tax for your business or individual.

Financial Year

In Australia, the financial year goes from 1st July to 30th June.

We call it the financial year ended 30 June 20XX. So, if somebody says "Financial Year 2025" or sometimes, "FY2025" we mean the financial year ended 30 June 2025.

Superannuation

This is a compulsory savings for future retirement that every working Australian is required to have paid into their fund this is called a "super guarantee".

Funds can be:

1. regulated (public funds); or

2. self managed (personal funds).

Super guarantee is payable on an employee's ordinary time earnings^ when the employee is:

• Over 18 years of age (irrespective of how many hours they work per week); or
• Under 18 years of age and work over 30 hours per week.

The rate of Super Guarantee is:

• Financial Year 2024 (i.e. 1 July 2023 - 30 June 2024): 11%
• Financial Year 2025 (i.e. 1 July 2024 - 30 June 2025): 11.5%
• Financial Year 2026 (i.e. 1 July 2025 - 30 June 2026): 12%

Until 1 July 2025, Superannuation can be paid on a quarterly basis. Superannuation contributions incurred during the following periods and their due date:

• 1 July 2024 - 30 September 2024: Paid (and accepted by super funds) by 28th October 2024
• 1 October 2024 - 31 December 2024: Paid (and accepted by super funds) by 28th January 2025
• 1 January 2025 - 31 March 2025: Paid (and accepted by super funds) by 28 April 2025
• 1 April 2025 - 30 June 2025: Paid (and accepted by super funds) by 28 July 2025.

Note however, superannuation is deductible to a business owner when paid and accepted by the super fund provided it is received and processed by the super fund prior to the due date. If you want to maximise your deductions for the year, you'll need to ensure the June quarter super is paid well before 30 June (usually allowing 14 days for processing - i.e. pay by 15th June each year).

In an attempted crack down for the number of business owners who aren't doing the right thing, from the 1st July 2025, business owners will be required to pay superannuation as they pay wages. So, if you pay weekly payroll, then you'll pay the net wage to the employees and their superannuation on the same day.

If paid late or not paid at all, the Directors of the company are now personally liable for the payment for superannuation in the event of liquidation.

Single Touch Payroll

An initiative to streamline employers' reporting to government agencies for their employee's salary and wages via an electronic portal. Key information is reported in real time to the government and allows your employees to have visibility on their taxable income in real time via their myGov portal.

Ordinary Times Earnings (OTE)

In payroll for employees, ordinary times earnings (OTE) is the ordinary pay including:

• normal salary or wage;
• bonus;
• commissions;
• leave loading;
• annual leave taken;
• shift loadings;
• personal leave taken
• some allowances (eg fixed amounts for laundry allowance based on number of shifts);

OTE can sometimes differ to the total salary and wage of an employee. For example, overtime earnings is not considered OTE, but it is part of the salary and wage of that employee.

Superannuation guarantee is calculated on the OTE of your employee which is why it is important to understand your obligations and what is and isn't included in OTE.

The ATO has a comprehensive list and decision tool of OTE here.

Business Activity Statement (BAS)

This can be quarterly or monthly depending upon your registration details for GST. The Business Activity Statement is the Business advice to the ATO about how much:

• GST they collected
• PAYGW they withheld from wages
• PAYGI they need to pay for the quarterly business tax instalment for current financial year
• WET tax to claim / pay (only relevant for wine growers)
• Fuel Tax Credits they can claim

If monthly, are due on the 21st of every month. If quarterly, usually due (unless you use a Tax Agent or BAS agent) the 25th of the month following the quarter. If you use a registered agent, you usually automagically get a 28 day extension.

Instalment Activity Statement

A monthly instalment advice for PAYG withheld from wages (i.e. PAYGW). Usually now pre-filled by the ATO based upon the STP reporting you've completed in your payroll software.

Due the 21st of every following month (eg Month 1 May - 30 May reportable and payable 21 June).

Note on timeliness of reporting your BAS / IAS

In recent years, the ATO has strengthened their controls and now, legislation allows them to impose a Director Penalty Notice (for companies) if a BAS has been lodged late. Meaning that the outstanding BAS or IAS will become the personal liability of the directors. It is imperative therefore, to make sure that your BAS and IAS is lodged on time every time especially if you are trading as a Company.

Australian Business Register (ABR)

The Australian Business Register is responsible for issuing Australian Business Numbers (ABN) and managing the ABN lookup facility. Their formal website is: https://www.abr.gov.au/

Australian Business Numbers

An Australian Business Number is mandatory for all entities who are carrying on a business in Australia. It is a unique 11 digit code that is linked to the legal trading entity. Super funds, charities and business owners must have an ABN.

The register is easily searched online using the ABN lookup facility here.

Australian Securities & Investment Commission (ASIC)

Formal website: asic.gov.au

Amongst other things, ASIC is charged with the implementation and overseeing compliance with the The Corporations Act 2001 (Cth) and issuing business names.

ASIC is the Government Body that authorises the incorporation of new companies, and business names.

Business Name

Business names used to be governed by states and territories, which often times resulted in many entities having the same business name and making things complicated for consumers to find out who they were trading with.

Now, business names are handled by ASIC and cross borders, meaning if a business name is already registered in one state, that name cannot be registered by another business owner in another name.

An entity needs a business name when they are trading as a name other than their legal name (as outlined in the ABN register).

Director ID

A director ID is a unique identifying number (15 digits) that company directors (including those for charities) are required to have. They are designed to be retained forever and aim to:

• prevent the use of false or fraudulent director identities; and
• make easier for external administrators and regulators to trace directors' relationships with companies over time.

From 1st November 2023, every director is required to have a Director ID.

https://www.abrs.gov.au/director-identification-number

Tax Practitioners Board

Official website: tpb.gov.au

Charged with ensuring people and businesses who are operating as a Tax Agent or somebody who can help you prepare your bookkeeping under contract (note: not relevant if they are a direct employee) have the relevant qualifications and insurances for doing the work.

Before you hire a new bookkeeper or tax agent for your business you really need to search the Public Register of registered agents, this is because if you hire somebody who isn't registered, you aren't covered if audited by the ATO or covered by any professional indemnity insurance.

https://myprofile.tpb.gov.au/public-register/

Other

MyGov

Official website: mygov.gov.au

The Federal Government has aimed to streamline an individual's interaction with various federal government services such as MyAged Care; Centrelink; ATO; Medicare in a secure online portal with a single login and one password.

In order to do this, they've created MyGov. It can be downloaded as an APP on your mobile phone.

MyID

Official website: myid.gov.au

Previously MyGovID, the MyID allows business owners and their authorised employees to access various government services specifically related to running a business. Such as ATO portal for business; creating a Director ID; federal government grants (eg R&D and export).