ATO. TFN. ACN. ABN. There’s enough jargon out there to confuse even the savviest of tax pros. Here are some of the most commonly used terms explained

When it comes time to do your tax return, most people are hoping for a nice refund. But with all the different terminology out there, it can be hard to know what means what and whether it’ll impact you. Here are some of the most commonly used tax terms and their definitions to make things a little bit easier this end of financial year.

Activity statement/business activity statement (BAS)

An activity statement is a form used by businesses registered for GST to report their business tax entitlements, including GST, PAYG instalments, PAYG withholding and FBT instalments.

Allowable deduction (also referred to as deduction)

This refers to any expense incurred in the course of work during the financial year that can be used to reduce the amount that can be taxed.

Asset

An asset is an item of value, such as property or a car, or a financial item such as shares or funds in a bank account.

Australian business number (ABN)

This is an identifying number for business owners to use when dealing with the ATO, other government agencies, and other businesses.

Australian business register (ABR)

This public register contains details of all registered businesses in Australia.

Australian company number (ACN)

An ACN is issued by the ASIC (Australian Securities and Investments Commission) to new businesses that choose to trade under a registered company as their legal structure.

Balance sheet

This is a document used by businesses that summarises its assets and liabilities, as well as the net worth of that business.

Bond

A bond is a medium to long-term investment issued by governments and companies that pay the bondholder a regular and fixed interest rate during their term of the investment.

Business asset

A business asset is something you use for your business, such as an office computer or work van. Intangible items, such as goodwill, can also be business assets. You generally incur a GST cost when you sell a business asset.

Capital gains tax (CGT)

This refers to a tax on the profit made when selling or disposing of an asset such as investment properties, shares and collectables. The total amount is added to your assessable income and income tax is then calculated on the taxable income.

Company

A company is a business structure that gives owners protection from having to pay for the debts of the company (called ‘limited liability’). Unlike a business, a company has a legal identity of its own because it has been incorporated.

Dependant

A dependant is any person a taxpayer looks after who needs their financial support, such as a child.

Dividend

This refers to a company share that is paid to a shareholder.

Entity

An entity can refer to an individual, sole trader, body corporate, company, corporation, partnership, trust or superannuation fund.

Exempt income

Any income that is not taxable is referred to as exempt income.

Fixed interest investment

This is an investment that offers a fixed interest rate on a fixed sum of money, usually over a specific period of time.

Fringe benefit

This is any benefit received by an employee from their employer outside of salary or wages – for example, use of a company car. Fringe benefits are subject to fringe benefits tax (FBT), where the employer pays the tax.

Goods and services tax (GST)

This is a tax of 10% placed on the supply of most goods and services in Australia. Businesses who earn over $75,000 a year are required to pay GST.

Gross salary

This is the amount of money earned before any tax is deducted.

Income tax rate

This refers to the proportion of taxable income that is paid as tax. Companies have a set tax rate, unlike individuals, whose tax rate increases as the amount of money earned increases.

Indirect taxes

These are any taxes collected from a person or business other than the person paying tax. An example of an indirect tax is GST.

Limited liability

This is the limit placed on the responsibility of shareholders (owners) to pay for the debts of a company. Sole traders and partnership arrangements do not offer the business owner limited liability protection.

Medicare levy

The Medicare levy is a 2% (soon to be 2.5%) tax payable by most taxpayers to cover the costs of public health care in Australia.

Medicare levy surcharge

This is an extra amount payable by some taxpayers in addition to the Medicare levy. A taxpayer may have to pay the surcharge if they do not have the appropriate level of private hospital cover with a health fund and their income is higher than the threshold.

Net amount payable

This is the total amount to be paid to the ATO. It includes an individual’s tax payable and their Medicare levy (if applicable), minus any credits for tax offsets and PAYG amounts (amount you’ve paid throughout the year already).

Pay as you go instalments (PAYG)

This is a system used by individuals and businesses to pay tax, such as tax on investment and business income, throughout the financial year.

 PAYG withholding

This is the system used to withhold income tax from employees throughout the year.

Profit and loss statement (P&L statement)

This refers to a periodic statement showing the revenue, expenses and net profit or loss of a business or other entity.

Salary sacrifice

A salary sacrifice refers to when a person makes extra contributions to their super fund from their pre-tax (gross) salary.

Stamp duty

Stamp duty is a state tax paid on purchases of assets such as property.

Tax offset/rebate

An offset or rebate is an amount that could reduce the amount of income tax payable, for example, medical expenses over a certain threshold.

Tax-free threshold

Tax-paying Australians who earn less than $18,200 taxable income during a financial year do not have to pay tax. This is referred to as the tax-free threshold.

Trust

A trust exists when a person or company (called a ‘trustee’) holds assets on behalf of others who are intended to benefit from the assets, or earn income from those assets. Those intended to benefit are called ‘beneficiaries’.

Are you looking for more tax advice this EOFY? Talk to an accountant in your area.