Registering as a sole trading business is the simplest and most cost effective structure available for individuals carrying out business; you have complete control over your operations and there are minimal legal requirements in comparison with other structures. As sole traders operate individually, tax is charged at the applicable individual marginal tax rate. For example, if your sole trading business is earning $60,000 pa, the highest marginal tax rate applicable to you would be 32.5% (excluding the Medicare levy of 2%). To complete your annual tax return, the fundamental obligations you hold to legally operate as a sole trader and to meet the applicable taxation requirements are as follows:
Tax File Number (TFN) – As a sole trader, you will not need to apply for a separate TFN for your business; you are able to use your personal TFN for business purposes.
Australian Business Number (ABN) – An ABN is a unique number to identify your business. Every business operating in Australia is required to hold a valid ABN. Without an ABN you are unable to trade, complete tax returns and could face serious penalties.
Goods and Services Tax (GST) – Once your business generates over $75,000 of revenue, the legal obligation to collect and forward GST to the Australian Taxation Office (ATO) arises. This is managed through yearly, quarterly or monthly Business Activity Statements (BAS) dependant on the characteristics of your business.
Pay As You Go (PAYG) Instalments- To avoid having to pay a lump sum of tax to the ATO at the end of each financial year, PAYG allows businesses pay their tax liability in instalments. PAYG only applies to your business or investments if they are earning a considerable amount.
Deductions- General and specific deductions are available to sole traders for expenses that are incurred which are directly attributable to the generation of income. Private expenses cannot be claimed as a tax deduction, however, in certain cases, i.e.- mobile phone that is used for both private and business use; an apportionment of the expense is able to be claimed. The deductions you are entitled to receive may vary if you are deemed to be a Personal Services Individual (PSI).
Superannuation- As a sole trader, you are responsible for payments made into your superannuation fund, these payments can be deductable on your annual tax return after you inform your superannuation fund.
Having a qualified taxation professional, with an in-depth knowledge of complex tax laws is vital to ensuring that your business is strategically and legally minimising it’s obligations. Without this, your operations could be designed in a manner that is not appropriately minimising your tax liability, or operating in a manner that violates taxation laws, which can lead to the back-payment of tax and significant penalties. Our team of tax consultants are dedicated to legally minimising the tax you pay to ensure the financial viability of your business.