Starting and running your small business
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A sole trader is the simplest business structure. The structure is inexpensive to set up because there are 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 - debts and losses cannot be shared.
Knowing the main features of a sole trader business structure may help you decide if this structure is best for your business.
As a sole trader, you use your individual tax file number (TFN) when you lodge your income tax return.
If you carry on an enterprise in Australia as a sole trader, you can apply for an ABN for your business and use this number for all your business dealings.
You can register for goods and services tax (GST) if you carry on an enterprise. You can apply for GST registration on the ABN application form.
You must be registered for GST if your annual GST turnover is $75,000 or more.
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Registering your business
The business income is treated as your individual income and you are solely responsible for any tax the business must pay. This means that, after claiming a deduction for all allowable expenses, you include all your business income with any other income and report it on your individual tax return.
After your first year in business, you must generally pay quarterly pay as you go (PAYG) instalments towards the amount of tax you expect to pay at the end of the year.
As a sole trader, you pay the same tax as individual taxpayers, at personal income tax rates.
Individuals who are Australian residents don't pay tax on the first $18,200 they earn. This is called the tax-free threshold.
Sole traders cannot 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.
If you are a contractor or consultant, you may have to treat deductions in relation to this income differently.
Personal services income
As a sole trader, you are responsible for your own super arrangements. You may also be able to claim a deduction for any personal super contributions you make. Before you can claim a deduction, you have to notify the fund of your intention to claim the amount as a deduction and wait until the fund confirms that you can claim the amount as a deduction. Once you receive this confirmation, you can claim the super as a personal deduction on your tax return.
If you have any eligible workers, you must pay a minimum of 9.25% of their ordinary time earnings as super guarantee contributions on their behalf.
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