Tax implications for sole proprietors
As an individual running a business in Australia, you have certain tax responsibilities that you need to fulfil. Let’s break down the main tax obligations for sole traders in Australia:
Income reporting
Include all sources of income, including income from your business, when filing your individual tax return. You can provide details about your business income and expenses in the business items section. Unlike other types of businesses, sole traders don't have a separate tax return specifically for their business.
Goods and Services Tax (GST)
If your annual GST turnover reaches $75,000 or more, you must register for Goods and Services Tax (GST). Additionally, registration is mandatory if you offer taxi, limousine or ride-sourcing services, regardless of your GST turnover. Once registered for GST, you should charge GST on taxable sales and can claim input tax credits for any GST paid on business expenses.
Business Activity Statements (BAS)
If you're registered for GST, have Pay As You Go (PAYG) withholding obligations or make PAYG instalments, you might need to submit Business Activity Statements (BAS). BAS reports important information about your business income, expenses and taxes.
Income tax
Remember to pay taxes on all your income, including what you earn from your sole trader business. Your individual tax rate determines the amount you owe.
For more information have a look at our beginners guide to beginners guide to income tax.
Deductions
When filing your tax return, remember that you can claim deductions for salary, wages and allowances paid to your workers. However, keep in mind that personal expenses or assets taken from the business for personal use are not deductible.
For more information have a look at our guide to tax deductions.
Personal Super Contributions
By notifying your fund and making personal super contributions, you may be eligible to claim a deduction. This offers an opportunity to save for retirement with potential tax benefits.
As an employer, it is essential to fulfil all your obligations, which include deducting PAYG (Pay As You Go) taxes and making superannuation contributions for your employees.