The extract below is from the Australian Taxation Office. This information provides a basic summary of general individual (sole trader) tax return and associated business tax reporting obligations.
A sole trader is the simplest and cheapest business structure you can choose as it has few legal and tax formalities.
If you operate your business as a sole trader, you trade on your own and control and manage the business. You are legally responsible for all aspects of the business, and debts and losses can’t be shared with other individuals.
As a sole trader you’re responsible for your own super arrangements and any staff you employ.
The key features of a sole trader business structure are that you:
- use your individual Tax File Number (TFN) when lodging your income tax return
- apply for an ABN and use this number for all your business dealings
- register for Goods and Services Tax (GST) if you carry on an enterprise (you must be registered for GST if your annual GST turnover is $75,000 or more)
- pay tax at the same income tax rates for individual taxpayers
- pay quarterly Pay As You Go (PAYG) instalments towards the amount of tax you expect to pay at the end of the year
- claim a deduction for any personal super contributions you make after notifying your fund.
As a sole trader you can’t claim deductions for money ‘drawn’ from the business. Amounts taken from the business are not wages for tax purposes, even if you think of them as wages.
Personal services income (PSI)
If you’re paid mostly for your personal efforts, skills or expertise, you might be receiving personal services income (PSI) and you may have to treat deductions in relation to this income differently.
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