Company Tax Return Preparation Overview

The profit in your accounting software and the taxable income on your company tax return are rarely the same number. The gap between them is not a mistake — reconciling it is most of the work of preparing the return, and understanding what your accountant is doing (and why they keep asking for documents) makes the whole process quicker and cheaper.

From accounting profit to taxable income

Preparation starts with reconciled year-end financials: bank accounts tied out, debtors and creditors reviewed, wages agreed to what was reported through payroll, and GST reconciled to the activity statements lodged during the year. Accounting profit is then adjusted for items tax law treats differently. Entertainment, provisions for annual leave and doubtful debts, and accounting depreciation are typically added back; tax depreciation and any available prior-year losses are then deducted. The result is the taxable income the company tax rate applies to.

The rate depends on the company's profile. Base rate entities — broadly, companies with aggregated turnover under $50 million and no more than 80% passive income — pay 25%, while other companies pay 30%. A company living mainly off rent, interest or dividends can fail the passive income test, so the rate is worth checking each year rather than assuming.

Franking accounts, losses and shareholder loans

Tax the company pays builds up its franking account, which determines how many franking credits can be attached to dividends. If the account is not maintained year to year, it is easy to over-frank a dividend and create a problem that only surfaces later.

Carried-forward losses are not automatic either. They can generally only be used if the company passes the continuity of ownership test or, failing that, the business continuity test — so a change in shareholders, or a pivot in what the business actually does, needs to be reviewed before losses are claimed.

Money drawn out by shareholders or their family members is the classic private company trap. Division 7A can treat those drawings as unfranked deemed dividends unless they are repaid or put on a complying loan agreement in time. This is checked as part of every private company return we prepare.

What we commonly see go wrong

• Shareholder drawings sitting in a loan account all year with no plan for dealing with them
• Dividends declared without checking the franking account first
• Losses claimed after an ownership change without testing eligibility
• GST and payroll figures that do not match what was lodged during the year, triggering rework

What your accountant needs

• Access to the accounting file, plus year-end bank, loan and finance statements
• Details of asset purchases, disposals and new finance during the year
• Dividend statements for dividends paid or received
• Any loan agreements with shareholders or related entities
• The prior year return, franking account and loss schedules if another firm prepared them

When to get advice

Talk to your accountant before year end — not after — if shareholders have drawn funds, if you plan to pay a dividend, if ownership has changed, or if the company has losses you are counting on. Most company tax problems are cheap to fix before balance date and expensive to fix at lodgement time.

What tax rate will my company pay?

Companies that qualify as base rate entities pay 25%, and other companies pay 30%; the test is applied each year, so the rate can change from one year to the next.

Can company losses reduce my personal tax?

No. Losses stay inside the company and can only be carried forward against future company profits, subject to the ownership and business continuity tests.

When is a company tax return due?

It depends on the company's size and lodgement history — companies lodging through a tax agent often receive extended due dates, but check the date that applies to your company rather than assuming.