Difference Between Sole Trader and A Company Tax

January 13, 2021    Tax Return Perth

There are certain fundamental differences between a sole trader and a company. Their key differences lie on tax rates, lodging tax return statements, superannuation, tax free allowance, and the like. The manner of tax and subsequent report holds an overall similarity in its framework but these differences are important to acknowledge in order to prevent unnecessary hassles and chaos. Let us delve into these difference one by one.

Tax Rates – Sole Trader vs Company

There are some invariable differences at the tax of sole trader tax return and company tax rates paid by a sole trader who is a single entity and a company, which comprises multi entities. Based on the individual income rate, tax rates are imposed on a sole trader. As for companies, the tax rate imposed is 30% and this rate varies per companies who run as per business-rate entities. For such businesses, different tax rates are applied.

Restriction On Allowance

The allowance restraint depends on different factors. As for sole traders, the allowance restraint depends on the individual business structure. Each business structure is designed for different rates of allowance and that has a limit. In the past financial year of 2019-20, the individual restraint was set at $18,000. This is variable.

The company is not entitled to receive any allowance on tax-rates. Every penny counts and you have to pay the tax as per the earning of your company.

Lodge Tax Return

The policies of tax return in Perth varies accordingly to the methods used to lodge tax return

The business owners of sole trading require to pay their sole trader tax return on an annual basis. There is no need for extra documentation to be produced to lodge the sole trader income tax return.

The company owner needs to lodge company tax return on an annual basis. While producing a company tax return, the required documents are the company’s income details, details of deduction on transaction and the income tax that the company is bound to pay.

Tax On Capital Gains (CGT)

Tax on capital gain is imposed depending on how much profit you bagged from investing. It is calculated by figuring out the difference between how much you invested on the real estate or any other possession and after putting it to use, how much you gained. The reverse happens in case you face a loss. If you kept an asset for more than a year and gained something by disposing that piece, you may be able to deduce your gain by imposing a discount method, concessions available for local or small businesses or through the indexation procedure.

Companies usually do not get to apply any discount to reduce their calculated capital gain. But in case of life insurance companies, there may be a few places where this provision can be put to use. If you face any indexation in your company, you have to apply indexation method to figure out your company’s capital gain.

Read More:- 3 Ways You Can Lodge Company Tax Return Fast

Pensions And Regulated Tax Methods

The types of business one conducts figures out his tax regulation methods. As for sole traders, it is necessary to register for GST under the following conditions –

  • Produce a hefty sum of $75,000 as a GST turn over.
  • Claim tax on credits on fuel tax needed for your business venture
  • If you provide vehicle to your passengers for commuting, you have to provide this irrespective of your turnover.
  • Always choose PAYG to for income payment.

If you are a company owner, invest on superannuation for your employees who are on the verge of retirement. Collect amounts for PAYG withholds from the payments made to your employees and report the amounts withheld, to ATO.

There are many differences that you can figure out gradually. These are the basic differences which you must keep in mind regarding the structure of your business and the tax rates that are going to be charged accordingly.

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