SOLE TRADER TAX RETURNS:
Taxation has been a major topic of concern for people getting into business for a long time. Different kind of business and ownership structures can affect the way an individual reports his/ her income and pays tax.
One of the most basic and cost effective business structure is when an individual runs his/her own business. As a Sole Trader in business, you are responsible for all aspects of the business including debts and losses. You operate and manage the business, you may have employees but you cannot employ yourself. In case you have employees, you need to pay yours and your worker’s super.
Some of the salient features of Sole Trader Taxation include:
- All income should be declared in individual tax return under the section for business items (income and expenses). You need to use your individual tax file number since there is no separate business tax return for sole traders.
- Make sure that you have an ABN and quote it for your business dealings including invoices.
- Ensure that you have registered for GST if your annual turnover is higher than 75,000 AUD.
- You pay tax at the individual taxpayer’s rate and may also be eligible for small business tax offset.
- Make sure that you keep aside a portion of your money quarterly (Pay as you go) and at the end of year to pay off Income Tax.
An important point to note is that you cannot show the money that you ‘drew’ from the business as ‘expenses’ or ‘deductions’. Since one of the fundamental aspects is that you do not employ yourself in a Sole Trader set-up. This implies that you cannot consider the amount ‘drawn’ from business as wages. However, you can claim a deduction for any personal super contributions you make after notifying your fund.
In your individual tax return, you should report your taxable income or loss. You should declare:
- your assessable business income less the business deductions you can claim
- any other assessable income, such as salary and wages (shown on a payment summary), dividends and rental income, less any allowable deductions against this income.
Don’t worry about calculating the amount of tax. The ATO would do this when you lodge your income and deductions. They would issue as assessment notifying you of tax owed or a refund. The PAYG instalments that you would have paid throughout the year will be credited in the final assessment that you receive from the ATO.
Net Small Business Income and its Calculation
The Net Small Business Income is defined as the sum assessable income from carrying out your business/ businesses less the deductions applicable to that income.
Net Income = Gross Income – Deductions/expenses
The ‘Small Business Income Tax Offset’
This is a tax discount that can help you reduce tax payable by up to 1000 AUD each year. It can simply be defined as proportion of Tax Payable on your Business Income.
This offset percentages are defined by ATO as:
|2016-17 to 2023-24
As a Sole Trader, you are eligible for this offset if your aggregated turnover is:
<5 million AUD from 2016-17.
<2 million AUD for 2015-16.
If you have had multiple businesses in the past one year, we could advise you in regards to what you can claim on your tax return for sole traders for taxation purposes.