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Home | [Financial Services] | Resources | Resources for Sole Traders

Resources for Sole Traders

As a Sole Trader you should read the following general information and familiarise yourself with the rules

Bank Accounts

Ensure you open the following business bank accounts

  • Business cheque account
  • Business credit card (car fuel & business purchases). Consider opening a credit card that links to a membership to earn points eg Qantas

Please put ALL business income and expenses through these accounts

Avoid putting personal transactions through these accounts – if the transaction is part business / part private yes put it through these accounts

If you make a purchase using a different account or you pay cash then you should reimburse the payment from the business bank to ensure that the transaction is not missed

Business Name & Domain Name

You can trade as your own name without having to register it e.g. John Smith

You may want to trade under a different & more marketable name – that being the case once you decide on a business name you will need to check that it is available on ASIC https://connectonline.asic.gov.au

  • Cost is approx. $87 for 3 years
  • If you want us to register the name add $220 for our fee

You should also check that the domain name is available www.crazydomains.com.au

You should check that the name does not infringe on a trade mark https://pericles.ipaustralia.gov.au/atmoss/falcon.application_start

ABN

If your invoice is more than $75 you must have a valid ABN

If you do not have a valid ABN then your business customers will be obligated to withhold 47% of your payment and forward it onto the ATO – you will get any over payment back when you lodge your tax return but in the meantime this may affect your cash flow

Asset Protection

Sole traders do not have any asset protection i.e. if you are sued your assets will be at risk

Companies and Family Trusts with corporate trustees are commonly used for businesses as they offer limited asset protection

Consider transferring your assets into your spouse’s name only – stamp duty may apply - there is a stamp duty exemption in Vic for transferring the family home between spouses. For further information please speak to your solicitor

Avoid purchasing large assets in your name where possible e.g. investment property

You may wish to purchase large business assets in another business structure or your spouse’s name

You should review your structure every 12mths or if your situation changes

Record Keeping

Records must be kept for at least 5 years

We recommend using Xero accounting software www.xero.com.au

If your sales are under $75,000 & you are not registered for GST you may prefer to use out cashbook

Bookkeeping

We recommend you use a qualified bookkeeper / BAS agent. Refer to the government’s registered BAS agent register

We have an in-house bookkeeping service (Arrow Bookkeeping) which supports all main stream accounting software including Xero, QuickBooks Online, MYOB and Saasu

Our fees start from $88 per hour including GST ($110 for training)

Our services include:

  • Daily bookkeeping
  • Reconciliations
  • Payroll
  • Quarterly Reviews
  • Support & Training

If you would like a quote or require further information please email natalie@arrowbookkeeping.com.au

Tax Return

Your personal tax return is due between 1 July and 15 May provided you do not have any outstanding tax returns and you are on a tax agent lodgement list.

Our fee to prepare and lodge your annual Tax Return will be based on complexity, number of transactions and accuracy of your record keeping

As a general guide our fees are

  • Standard Individual Tax Return $187
  • Add Business Schedule $330 from

Tax

Sole Traders are taxed at marginal rates i.e. the more you earn the higher the rate of tax

Refer to the ATO for current rates

Once your tax return has been lodged the ATO will estimate your next year’s tax liability and they may ask you to pay it in advance via instalments

Business Loss

If you make a business loss and you do not pass one of the non-commercial loss tests (e.g. sales must be more than $20,000) then the loss cannot be offset against your other income, rather it will be carried forward and offset against business profits in future years.

https://www.ato.gov.au/Business/Non-commercial-losses/

Tax Planning

Tax planning should be done at least once per year - in April / May once your March BAS has been lodged

The aim of tax planning is to minimise your tax and to estimate your tax liability at year end

If you would like us to do tax planning for your business please contact this office

There is a fee for this service. We will provide you with a fee estimate for your approval

Wages

You cannot be an employee of yourself therefore you cannot pay yourself a wage

If you earn Personal Service Income (PSI) and you do not pass the PSI rules then you cannot claim payments to your spouse or associate for support work eg. secretarial duties

You may employee others i.e. normal employees

If you employ staff you must do the following (where applicable):

  1. Register with the ATO for PAYG Withholding
  2. Have your employees complete a TFN declarations
  3. Register for Work Cover
    • You will need to register for work cover if your wages (including superannuation, rateable fringe benefits etc) exceed $7,500 per annum (refer below)
  4. Use bookkeeping software such as Xero

Drawings

You can withdraw / deposit funds into the business as you wish and as often as you like but be mindful that the more transactions you make the more booking will need to be done

When withdrawing money for personal use please take it consistently and in whole dollars e.g. $1,000 per week

You do not have to pay tax on withdrawals

Tax is payable on business profits (income less wages less expenses) plus anything else you earn e.g. bank interest

Paying Contractors

You must determine whether your workers are contractors OR whether they are employees – please do not just put them on as contractors without doing your due diligence

https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/

Keep a copy of the result for your files

Penalties may apply if you do not follow the rules

Suppliers ABN & GST registrations

Before paying your supplier & subcontractors you need to check that they have a valid ABN

If they do not have a valid ABN then you are required to withhold 47% and remit it to the ATO

https://www.ato.gov.au/business/payg-withholding/payments-you-need-to-withhold-from/withholding-from-suppliers/withholding-if-abn-not-provided/

Before paying your supplier & subcontractors GST you need to check that they are registered for GST

If they are not registered then do not pay them GST as you will not be entitled to claim it

Check out their ABN & GST status here

Work Cover

You must register for work cover if your total rateable remuneration (wages, superannuation, contractor payments, fringe benefits etc) exceed $7,500 per annum

Some contractor payments may need to be included

Note - sole traders are not eligible to open work cover policies for themselves as they are not employees as defined by the law – we therefore recommend you take out personal insurances

Personal Insurances

You should ensure you have adequate personal insurance cover

Life Insurance

pays a lump sum if you pass away or become terminally ill

TPD Insurance

pays a lump sum if you are unable to ever work again due to sickness or injury

Trauma Insurance

pays a lump sum if you are diagnosed with a serious medical condition

Income Protection Insurance

provides replacement income in the event that you are unable to work for a short period due to an injury or illness

We recommend Ben Graham-Nellor of Smart Happy Money (previously BGN Financial Management)

E: ben@smarthappymoney.com.au
W: www.smarthappymoney.com.au

If you would like a free no obligation please email Ben or contact us

General Insurance

You should ensure you have adequate insurance cover especially given that sole traders do not have any asset protection

  • Contents
  • Business Interruption
  • Glass
  • Tools of trade
  • Cyber
  • Public Liability

BAS / IAS

If you are registered for GST, PAYG Withholding or are required to pay tax instalments you will receive an IAS or BAS every quarter

Due dates are as follows:

Quarter

Period

Lodgement & Payment

Due Dates

1

1 July – 30 September

28 October

2

1 October – 31 December

28 February

3

1 January – 31 March

28 April

4

1 April – 30 June

28 July

 

Note:

  • If you are late you will be fined $210 per month per IAS (max $1100 per BAS/IAS)
  • You will also be charged interest on late payments
  • If you are going to be late let us know before the due date so we can apply for an extension on your behalf

Motor Vehicle

If you use your car for business purposes you can claim a tax deduction

You can use actual expenses (log book) or cents per km

Refer to this blog post for more information.

Superannuation

Business owners

Paying super for yourself is voluntary

If you make voluntary super payments for yourself you may be able to claim the payment as a tax deduction (subject to tests and limits)

The 2022-23 concessional super limit is $27,500

https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Concessionalcontributionscap#Concessionalcontributionscap

Employees

You must pay 10.5% super on their gross wage

Use the ATO decision tool to determine if you need to pay super https://www.ato.gov.au/Calculators-and-tools/Super-guarantee-eligibility/

Payment is due by the 28th day following the end of each quarter as follows

Quarter

Period

Lodgement & Payment

Due Dates

Pay By Date (to ensure the $ are received by the fund by the 28th)

1

1 July – 30 September

28 October

20 October

2

1 October – 31 December

28 January

20 January

3

1 January – 31 March

28 April

20 April

4

1 April – 30 June

28 July

20 July

 

Notes:

  • You must ensure your employee’s fund receives payment by the due date so don’t leave it till the last minute
  • If you want a tax deduction for quarter 4 in the current year please process by the 14th June
  • There are large penalties for late payment of super
  • There are no extensions available

Working from home

Most people DO NOT qualify as a place of business

If you use your home as a “Place of Business”

You may be liable for capital gain tax on your principle residence pro rata for area and time used

You can claim the following expenses:

  • Travel to/from your clients – refer to the attached fact sheet
  • Rent or Interest based on area of floor space used
  • Utilities – Gas & Power based on area of floor space used
  • Phone
  • Computer expenses
  • Printing & Stationery

You will need to pass the interest deductibility test

If you use your home as a “Home Office”

You will NOT be liable for capital gains tax on your principle residence

You can claim the following expenses:

  • Utilities – Gas & Power based on area of floor space used
  • Phone
  • Computer expenses
  • Printing & Stationery

GST

You are currently NOT registered for GST

You must register for GST once your sales turnover reaches $75,000 (see below - working out your turnover)

You can voluntarily register for GST if your sales are under $75,000 – business owners choose to register so their business appears bigger than it is or to claim back GST on a large purchase e.g. new car

You must register for GST when you provide taxi or limousine travel for passengers (including ride-sourcing) regardless of your GST turnover – this applies to both owner drivers and if you lease or rent a taxi

Working out your GST turnover

You are not registered for GST, you must check each month to see whether you have reached the GST turnover threshold. If you reach the threshold, you must register for GST within 21 days.

You reach the GST turnover threshold if either:

  • your turnover for the current month and the previous 11 months is $75,000 or more - current GST turnover, or
  • your turnover for the current month and the next 11 months is likely to be $75,000 or more - projected GST turnover.

However, if your current GST turnover reaches or exceeds the GST turnover threshold, but we are satisfied that your projected turnover will be below the threshold, you do not have to register for GST.

https://www.ato.gov.au/Business/GST/Registering-for-GST/