Lodge Your Income Tax As A Sole Trader In Australia

January 20, 2022    taxreturnperth

The sole trader is one of Australia's four main small business structures (the other three being a partnership, company, and trust) that is relatively easy to set up. Unlike other business structures, a sole trader business owner can lodge a single tax return that serves both business and personal purposes. Before you lodge, understanding the tax return and how taxation will be applied to your income will help you make profitable decisions about your money. This blog discusses all the details you must know before lodging your sole trader tax return.

Important Points To Keep in Mind About Sole Trader Tax Return

Before lodging the return, you must keep the following points in mind. 

  • The Australian income tax system follows the self-assessment principle. It means once you provide income information to the ATO, it will initially accept that the information is accurate. After that, the tax officials will work out how much you need to pay.
  • However, if necessary, the officials may also ask for records to support what you have claimed. So, you must keep all the important records for verification.
  • The allowable deductions are subtracted from the assessable income to find the amount of tax you will need to pay. 


Read More:- What Is A Company Tax Return And How To Lodge It?

Assessable Income

Assessable income is the majority portion of the money you earn to run your business, and it includes income like amounts received from selling products or for offering various services. In the assessable income, the gross earnings must also be included besides the profit.

However, there are several amounts that you must not include in the assessable income. These amounts include GST you have collected, personal funds invested in your business as the owner, and any borrowed amount.

Deductions

As the owner of your business, you can claim tax deductions against most costs incurred in business operations. Usual business running expenses are costs related to advertising and marketing, electricity, and business travel. 

  • You can also claim a deduction for several years, and this deduction is known as 'depreciation.' In addition, deductions can also be claimed for capital expenditure like computers, machinery, capital assets, or tools.
  • Under deductions, too, there are certain payments that you cannot include. For example, if you have lent some money to the family members from the business, you cannot enlist that amount as a tax deduction. 

You cannot include other costs in your tax return as deductions are those related to personal use of office equipment, holiday travels, and GST. To make sure you include correct costs as deductions, you may consult a professional sole trader tax accountant

PAYG (Pay As You Go) Instalments

  • In Australia, you have to start paying your business tax as PAYG (Pay As You Go) instalments once your business completes one year. If the first tax return lodged by you shows a profit made from the investment or business income, the ATO will send you a letter to let you know whether you will need to pay these instalments.
  • Typically, PAYG instalments have to be paid every quarter, but you can also pay it annually. The letter you will receive from the ATO will help you know how often you should make the payment.
  • Once you become a part of the PAYG instalments system, any instalments you pay during the financial year will be credited towards the final tax assessment after you lodge your tax return in Perth. 
  • If you do not have enough experience in business, you must be cautious with your budget and have money kept aside for the total tax you have to pay. According to your estimations, if you want to meet tax obligations at the end of the financial year, you may consider making voluntary payments to the ATO.
  • There are different PAYG withholding tables available on the ATO website that you can check to see how much tax you have to pay. You can also find the tax rates in the tables.


Read More:- What Are The Consequences Of Not Lodging Tax Return On Time?

Tax losses

If the total deductions you have claimed for a financial year are more than the total assessable income, it will result in a tax loss. If you face loss in your sole trader business and earn from other sources like getting a salary, you can claim this loss by offsetting it against the income you earned from any other source. But, for that, you must satisfy the specific ATO criteria. Failing to satisfy this criterion will not allow you to offset this loss, so you must keep this factor in mind.

However, there is an alternative to it. If you can make profits in the following year, the deferred loss can be offset against the profit amount.

Contact Tax Return Perth for Any Help

Tax Return Perth is known for its exclusive income tax return services to its clients. You may contact them to make sure you receive all the tax deductions and offsets included in the tax return. They offer a free tax return consultation that you can access before the lodgement. 

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