You may earn your income in more ways than just from your job and ignorance is not an excuse from the ATO. There are many ways people may make an income and it all adds to your taxable income.
Income as an individual running a business
According to figures released by the Australian Bureau of Statistics, there are 2.3 million actively trading businesses in Australia in June 2018 (and increase of 3.4% from June 2017). This is a fifth consecutive year of growth of businesses in the Australian economy. You may be one of them!
Sole traders and Companies
Sole trader businesses and companies both have different tax and legal implications. A sole trader is taxed at the personal income tax rate and there are a myriad of claims you may be eligible for. There have been recent changes to the tax rates and your tax offset probably will change this financial year, as will your claims.
After you have claimed all of your eligible expenses, you then declare your income. If you are a new business then quarterly as Pay-As-You-Go (PAYG) instalments will not be calculated by the ATO until after you lodge a tax return with a profit.
If your business is a company, it must lodge its own tax return and is taxed as a separate legal entity. If there is an associated trust, the trust must lodge its own tax return too. There is no tax-free threshold for a company business structure. The company tax rate is currently 30% or 27.5% if you are a base rate entity.
Income from a partnership
A business partnership doesn’t pay tax on its income, but a tax return should still be lodged when declaring income earned and expenses deducted. This will show the distribution of the net income or loss between the partners.
Each partner must declare their individual share of the partnerships net income on their tax return, regardless if they have received the income. Any capital gains made by a partnership are distributed to each partner based on the share in the business. Capital gains tax (CGT) is calculated in an individual’s tax return and not on the partnership.
Income from a trust
A trust is not a separate legal entity, but the trustee must lodge a tax return for the trust. Beneficiaries must declare the amount of income that they are entitled to and then must pay the income tax, along with their other income streams, even if they do not receive the income in that financial year.
You don’t need to declare a trust distribution if family trust distribution tax has already been paid.
Small business forms a large percentage of the Australian economy and many people earn their main stream of income from their own business. It’s important to be current with the laws and regulations. You’ll know what your obligations are, but you’ll also be that savvy business owner who knows what claims they can make.
Your tax agent is an important partner for any small business owner. What’s more, if you’re a customer of ITP The Income Tax Professionals, you can contact your professional any time during the year for instant hints and money saving tips – for free! There’s no doubt, that’s a good investment.
There’s no doubt that lodging a tax return can be complex, especially when several streams of income need to be declared. Tax agents are fully certified accountants who have specialised in tax law. They understand the latest changes and what you need to include on your return – even if you don’t. All ITP Income Tax Professionals are registered with the Tax Practitioners Board of Australia. Book an appointment and speak to a professional today.