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15 min 19 sec
0:00
Opening
1:29
Who lodges a company return
2:03
How the return is built
4:06
What a small company will use
6:21
Company information
7:20
Item 1: Holding companies
7:52
Item 2: Main business activity and industry code
8:54
Item 3: Residency and entity type
10:07
Item 3: Small business entity (F1)
11:33
Item 3: Base rate entity (F2)
12:44
Item 3: Global, consolidated and activity indicators
13:26
Item 4: Interposed entity election
14:39
Item 5: Country-by-country reporting entities
15:01
Close
The Company Tax Return, Explained
·
Getting started
·
Episode 1
Structure, and the company’s details
Who lodges a company return, how the form is built, what a small company actually uses, and items 1 to 5: residency, small business and base rate entity status, and the elections.
company tax return
base rate entity
small business entity
items 1 to 5
Do it in Beeswax
Tax Returns
↗
Transcript
0:00
This course explains the Australian company tax return, and the year-end work that comes before it. In Beeswax, a financial year closes in two steps. Step 1 reviews the books.
0:11
Step 2 is the tax return, built from them. Then the return is finalised, the year is locked, and the return is lodged. The course follows that order: this film covers the return's structure and the company's details; Films 2 and 3 cover Step 1, the year-end review; Films 4 to 7 cover Step 2, item by item, through to finalising and lodging.
0:33
It's based on the 2026 return and the instructions for it from the Australian Taxation Office, the ATO, for the income year ending 30 June 2026. It's general information, not tax advice.
0:46
A company can lodge its return in three ways: through a registered tax agent, who lodges it from their own practice software; through software built on the government's standard business reporting, or SBR, which sends the return straight from the software to the ATO; or on paper.
1:03
The ATO's Online services for business is something different. It's the ATO's website for businesses, used for things like activity statements and the company's tax account, but it has no company return to fill in.
1:15
So a company can't lodge its return there, and to lodge online itself, it needs SBR-enabled software. From this film, a small company needs chapters 3 to 9. The rest you can skim.
1:29
In the 2023–24 income year, about 1.32 million companies lodged a return. The same form serves all of them, from a dormant shelf company to a multinational group.
1:41
Most of them are small: one in seven reported no income at all; three in four reported some income, but under 2 million dollars; only about 3 per cent reported 10 million or more.
1:53
So much of the form exists for a small minority of companies. Recognising which parts those are is most of the work of preparing it. This is the ATO's paper form: twelve pages.
2:07
Beeswax's return follows its order: company details for the front page and items 2 and 3, then items 6, 7 and 8, and on to the calculation statement. It leaves out items small companies rarely use, such as 1, 4, 5, 11, 12 and 15 to 24.
2:25
It adds two panels that aren't on the paper: a goods and services tax summary, and the instalments the company paid during the year. Every other figure in Beeswax has one home on the paper, and the return's Actions menu links to the ATO's own form and instructions.
2:41
The return is built in a fixed order. Items 1 to 5 describe the company: its owners, its industry and its status. Item 6 is the profit and loss. Its income and expense labels hold accounting figures, matching the company's financial statements.
2:57
Item 7 reconciles that accounting profit to taxable income. Every tax adjustment is made here, and nowhere in item 6. Item 8 holds balance sheet figures and other information the ATO uses for checking and statistics.
3:11
Items 9 to 30 cover particular regimes, such as capital allowances, losses, offsets and international dealings. The calculation statement turns taxable income into the amount payable or refundable.
3:24
The declarations, on the last page, are signed by the company's public officer, and by the tax agent when one prepares the return. Item 6 has one exception to the accounting-figures rule.
3:35
A small business entity using the simplified depreciation rules writes depreciation as its tax value. On the front page and items 1 to 8, the form marks three labels as mandatory: the company's name; the description of its main business activity, at item 2; taxable or net income or loss, at item 7, even when it's zero.
3:57
The calculation statement has its own mandatory labels, and every company answers the questions at items 26 to 30. For a typical small service company, the items fall into four groups, by how often they're needed.
4:12
Always means a small company completes them every year. Usually means most small companies will have something to put there. Sometimes depends on how the company is set up, or what happened in the year.
4:24
And Rarely means most small companies never touch them. First, the items you'll always complete: the front page, items 2 and 3, item 6, taxable income at item 7, the main labels of item 8, the yes-or-no questions at items 26 to 30, and the calculation statement.
4:46
Next, the items you'll usually need: a few adjustments at item 7, and personal services income at item 14, if the income comes mainly from the owner's own work. Then the items you'll need only sometimes: item 1, when another company owns this one; depreciation at item 9 or 10; losses at item 13; and item 4, for companies in a family trust group.
5:11
Finally, the items you'll rarely need, and most companies never: item 5, and the specialised regimes at items 15 to 25. To show how this works in practice, we'll follow one example company all the way through the course: Saltbush Design Pty Ltd.
5:28
It's invented: a graphic design studio with five staff, owned by its one director. Film by film, we'll build its return, starting in this film with its details on the front page and items 1 to 5.
5:41
In this course, Beeswax holds the company's information and figures, and we use them to prepare the return on the ATO's paper form. The paper shows every label to every company: page 9, items 21 to 24, is blank for most.
5:56
Beeswax opens company returns in Simplified mode, which hides 70 of the return's 151 fields. "Show all fields" brings them back. Two hidden ones matter to many small companies: loans to shareholders and payments to associated persons, at item 8.
6:14
Step 1's checks point to both, and "Show all fields" shows them on the return. The front page identifies the company, field by field. The first field is the tax file number.
6:27
If one has been applied for but hasn't arrived, attach a copy of the application. Next is the company's name, exactly as registered with the Australian Securities and Investments Commission, ASIC.
6:39
Then the Australian business number, or ABN. If the company's name has changed, the previous name goes in the next field, with its Australian company number or Australian registered body number.
6:51
Then the postal and business addresses. The business address is where most business decisions are made. "Care of" is accepted only as C, slash, hyphen. The final tax return question: answer Yes only if the company won't need to lodge returns in future.
7:07
Last, the bank details: a bank-state-branch number and account number for any refund. They're required even if supplied before, and refunds go only to an Australian account.
7:20
Item 1 names the ultimate holding company, the one that controls the whole group. It's given with an ABN, or a country code if it's overseas. It also names the immediate holding company, the one directly above.
7:34
If there isn't one, it's left blank. Saltbush is owned by a person, not a company, so its item 1 is blank. The ATO uses items 1 and 2, along with certain income labels, to identify entities for its annual Report of entity tax information.
7:52
The description must be specific to the activity that earned the most gross income. The ATO's examples are "beef cattle breeding" and "investing in residential property".
8:03
Generic words such as "farming", "investing" or "company" aren't accepted. Saltbush writes "graphic design services". The industry code, label B, is five digits, from the ATO's business industry code tool.
8:18
The codes are a modified version of the Australian and New Zealand Standard Industrial Classification. The percentage of foreign shareholding, label A: take the ten largest shareholders at year end and add up what the foreign ones hold.
8:32
If the total is under 10 per cent, leave it blank. Why the industry code matters: some background on what the ATO does with it. The code places the company among its peers.
8:44
The ATO publishes its industry benchmarks from these codes. Its instructions warn that a wrong code can lead to incorrect targeting of audits. Item 3 is a grid of check boxes.
8:57
The ATO notes that the selections here can decide how the tax law applies. Residency is one of three boxes: Resident, C1. A company incorporated in Australia is resident.
9:10
A company incorporated overseas is resident if it carries on business here and either its central management and control is here, or its voting power is controlled by shareholders who are Australian residents.
9:22
Non-resident without a permanent establishment in Australia, C2. Non-resident with one, C3. This also requires an international dealings schedule. Entity type is one box only.
9:35
If more than one fits, choose the first that appears. Most small trading companies are private companies under the tax law, and tick private, D9. Private or public here means tax-law status, worked out each year, not company-law status.
9:52
Besides private and public, the other boxes cover: co-operatives; non-profit companies; strata title bodies; pooled development funds; limited partnerships; public trading trusts, which are taxed like companies.
10:07
Small business entity, F1, is ticked if the company carries on a business and has aggregated turnover under 10 million dollars. Aggregated turnover includes the turnover of connected entities and affiliates: broadly, entities it controls or that control it, usually through 40 per cent or more, and people or companies that run their own business on its directions.
10:30
There are three ways to meet the threshold: Last year's aggregated turnover was under 10 million. That's enough on its own. This year's, estimated at the start of the year, is likely to be under 10 million.
10:43
This isn't available if turnover was at or above the threshold in each of the two previous years. This year's actual turnover, at year end. A company that qualifies only this way can't use the goods and services tax, GST, and pay as you go, PAYG, concessions for that year, because those had to be chosen during it.
11:04
Small business entity status unlocks: simpler depreciation; simplified trading stock rules; immediate deductions for some prepaid expenses. The small business capital gains tax, or CGT, concessions use a stricter test: aggregated turnover under 2 million dollars, or net assets of no more than 6 million.
11:26
The F1 tick also tells the ATO how to work out PAYG instalments. Base rate entity, F2, is ticked if the company has: aggregated turnover under 50 million dollars; and no more than 80 per cent of its assessable income as base rate entity passive income.
11:45
That includes portfolio dividends and their franking credits, interest, rent, royalties and net capital gains. A company can be both a small business entity and a base rate entity, as Saltbush is.
11:58
A base rate entity pays 25 per cent for 2025–26, and most other companies pay 30. A similar test, applied to last year's figures, sets the rate the company uses to frank its dividends.
12:12
Where the passive income test came from: some background on why the test exists. It was added as a fix. When the Enterprise Tax Plan extended the lower rate from 2016–17, a company qualified only if it was "carrying on a business".
12:27
In 2017 a draft ATO ruling suggested that could include companies that mainly hold investments. Parliament replaced the test with the 80 per cent passive income test in 2018, applying from the 2017–18 year.
12:43
The remaining boxes in item 3: Activity indicators, E1 to E3, flag multiple businesses, a business that ceased, or one that started. Significant global entity, G1: part of a group with global income of 1 billion dollars or more.
13:02
Country-by-country reporting entity, G2, which brings in item 5. Head company of a consolidated group, Z1. A consolidated subsidiary member, Z2, is one lodging for the part of the year it was outside the group.
13:18
Ticking Z1 doesn't notify the ATO of the choice to consolidate; that needs its own approved form. Item 4 matters only if the company has made an interposed entity election, or is making or revoking one this year.
13:34
That election puts the company in the family group of the person named in a family trust's election. Usually it's made so the trust can distribute to the company without paying family trust distribution tax.
13:46
Being owned by the family isn't, on its own, enough to be in the family group. Without an election, a company is inside only if family members, or the family trust, have fixed entitlements to all its income and capital.
13:59
The ATO describes that as very limited. The earliest income year specified, label L, is the earliest year in the company's elections, or in this year's new ones if it's making any, written as the year it ends.
14:13
2025–26 is written "2026". Code R records a revocation. The trade-off: if the company itself pays a dividend or other distribution to anyone outside the family group, it pays family trust distribution tax at 47 per cent.
14:31
If the company has never made an election, item 4 stays blank, as it does for Saltbush. Item 5 is only for companies that ticked G2. Such a company must give the ATO a general purpose financial statement unless it lodges one with ASIC in time.
14:49
Label A asks whether it has; label B asks whether it will. The statement itself goes through the ATO's Online services for business, never with the return. That's the company described.
15:03
Before any figure goes on the return, the books behind it are reviewed. The next two films are Step 1, the year-end review: what each check tests, and where its answer lands on the return.
15:15
Item 6 follows in Film 4.