Tax Advice For Sole Traders In Australia

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    If you are operating a sole proprietorship in Australia, you should probably get some professional guidance on the applicable tax laws. The Australian Tax Office is the governing body in charge of all aspects of taxation in Australia. As such, they are the ones who are in charge of publishing useful information that can assist you in navigating this procedure.

    If you are self-employed, this blog post will provide links to these sites so that you can learn more about the tax responsibilities that fall on your shoulders. We sincerely hope that you find this material helpful!

    There is a branch of the Australian Tax Office that is committed to serving as a resource for sole proprietors. However, you must begin by having a fundamental understanding of how the tax system applies to this kind of organisation. This piece on the blog will provide some information on what they are as well as offer ideas on how to save money by arranging your tax strategy in a manner that is appropriate.

    It is important to keep in mind that there are two distinct types of businesses that fall under this category. A person or company that possesses an ABN has the option of being taxed as either a sole trader or partnership, whereas a business that does not possess an ABN can only be taxed as a sole trader. Sole proprietors are responsible for paying income tax, GST, and any other applicable fees and taxes at their own individual marginal rate.

    Guide to Financial Year End for Individual Entrepreneurs

    The close of the fiscal year is a crucial point in time for the operation of your small business. You can, however, turn tax time into something that works for you rather than something that works against you with a little bit of preparation and planning.

    In this section, we will take you step by step through what you can do to get ready for tax season and help you think about what company expenses you may be able to claim as a tax deduction.

    Get Your Finances Organised And Current

    Getting your financial records in order is the first thing you'll need to do if you're going to be operating as a sole proprietor.

    You are going to require a record of the financial activities of your company for the year, which typically includes a balance sheet as well as a profit and loss statement.

    A statement of your company's financial situation at the end of the year is called a balance sheet. It details both your assets (such as stocks and cash, as well as money owing to you) and liabilities (such as debts) (loans, money you owe). Additionally, it displays your equity or net assets.

    A profit and loss statement, also known as a P&L, breaks down how much money was made by a company over a certain time period. It provides a rundown of both your revenue and your expenses. Calculating your profit simply involves deducting the total amount of your income from the complete amount of your costs.

    Do you require assistance in putting together your financial information? You can acquire templates for your balance sheet and profit and loss statement from the federal government to help you get started.

    Make Sure You Have Enough Cashflow

    You might not have been required to make PAYG contributions during the year if you were a sole proprietor. On the other hand, the size of the tax bill you have to pay at the end of the fiscal year is going to depend heavily on the profits your company made. It may be impossible to estimate how much your taxes will cost, but you should make an effort to set aside some money on a consistent basis throughout the year in order to be prepared when tax season rolls around.

    When it comes to preparing your taxes, this is one of the most critical things you can do as a sole proprietor to guarantee that your cash flow is not disrupted in any way.

    Consider the Amounts You Can Deduct From Your Taxes

    In most cases, you should be able to claim a tax deduction for the majority of the costs you incur in order to keep your business operational. However, it is essential to maintain an accurate record of the costs incurred by your company by keeping all of the receipts that you have accumulated throughout the course of the fiscal year.

    Common Tax Deductions for Individual Entrepreneurs

    The following are some common types of tax deductions:

    • Equipment used in businesses, such as computers and mobile phones, is subject to depreciation
    • Software used for your business 
    • The costs of marketing
    • Expenses related to business financing
    • Travel required for work
    • Memberships in professional organisations
    • Tax accountant charges
    • The interest that is paid on loans to businesses.

    Do You Run Your Business From The Comfort Of Your Own Home?

    You may be eligible to claim tax deductions for some home-based business expenses if you run all or part of your business from your residence. Some of these expenses include the following:

    • tenancy costs, such as principal and interest on a mortgage or rent, council charges, land taxes, and premiums for homeowners insurance
    • recurring costs such as rent, utilities (such power and phone), depreciation of plant and equipment, maintenance to furniture and furnishings, and general upkeep

    Do You Put Your Car To Use In Your Business Endeavours?

    When travelling for business purposes, most of the costs associated with using a motor vehicle can be deducted from your taxes. This typically entails going from one company location to another. You may also be eligible to make a claim for the car's depreciation, which is the reduction in value that results from normal use and wear and tear on the vehicle.

    Do You Possess Office Equipment?

    You may be able to claim depreciation on the equipment that is used in your business, much like you can claim tax deductions for vehicles that are used for business purposes. This depreciation is based on the value of the equipment decreasing over time due to use and wear.

    As long as the item is used for your company, you can claim depreciation deductions for the vast majority of asset categories, including the following:

    • Computers and their associated software
    • Furnishings for the workplace, including bookcases and filing cabinets
    • Power equipment include grinders, sanders, and hammer drills as well as hand tools like spanners, hammers, and screwdrivers
    • Items that provide protection, such as hard hats, safety glasses, sunglasses, sunblock, and cosmetics that incorporate sun protection
    • Professional libraries
    • Safety apparatus
    • Technical devices
    • Forklifts

    You have the right to make a claim for the costs of repairing and insuring your tools and equipment, as well as any interest that accrued while you were borrowing money to purchase these things.

    Think About Investing On New Office Supplies

    You should start thinking about whether or not you will need new equipment in the future year, as well as whether or not the equipment you already have needs to be serviced or replaced. There is a possibility that you could receive an instant tax reduction if you buy a car or piece of equipment that is eligible for the deduction.

    In light of recent reforms that have been implemented by the government, eligible businesses are now able to make an immediate claim for an immediate deduction for the business portion of the cost of an asset in the year that the asset is first used or installed ready for use, provided that certain conditions are met. Learn more about the instant write-off of assets as well as temporary full expense reimbursement.

    By taking out a loan for a vehicle or piece of equipment for your company, you may help it be ready for the coming year. Don't overlook the importance of determining the monthly repayments that your company is able to meet. Equipment financing is an option to consider when you don't want to tie up your operating capital for an extended period of time.

    Yes, sole proprietors can be qualified for the quick asset write-off, but only if they meet the requirements to be considered a qualifying business.

    Prepare Yourself With a Strategy

    A straightforward strategy can alleviate much of the anxiety that comes with tax season, and it can also give you the sense that you have more authority to manage your financial obligations in this area.

    • Put your financial records in order and make sure they're up to date
    • Make a list of the expenses you can deduct
    • Think about the ways in which government programmes like the quick asset write-off could be beneficial to you
    • To help you keep track of the various tax deadlines, you should write the required dates down in your calendar.

    Tax Season Advice for Sole Proprietors, Freelancers, and Other Independent Contractors in 2021

    To all of the sole proprietors and independent contractors out there, we have compiled a comprehensive list of ten essential pointers that will assist you in putting your best foot forwards when it comes time to file your taxes this year. These pointers will also assist you in maintaining as much ease and composure as is physically possible throughout the process.

    Avoid waiting until the last minute

    How many people do this is astounding. The most frequent error people make when submitting a tax return is postponing it repeatedly until there is little time left to get it all done, and it's understandable why doing so might make it even more stressful than it already is. On the other hand, organising everything beforehand makes the procedure much more laid-back.

    Take Care When Handling Receipts

    Did you know that you have to save every receipt for five years after filing a tax return and claiming a deduction? Having them stored digitally makes everything a lot simpler, so make sure you scan any physical receipts and save them on your computer. Keeping track of them digitally makes everything a lot simpler (backing them up to the cloud, too).

    Maintain Consistent Record-Keeping

    Maintaining spreadsheets requires a lot of time and effort, and it should be avoided at all costs. But if you stay on top of things throughout the fiscal year, you can rest assured that everything will be current and prepared for you to file your taxes when the time comes. In the event that this does not occur, the preparation of the necessary paperwork, including invoices, receipts, and other forms of documentation, involves a frantic dash against the clock.

    Understand the Deductibles

    Read our post that explains all of the tax incentives that were included in the most recent Budget that was passed by the government for sole proprietors and independent contractors.

    Aside from them, if you want to minimise the amount of tax that you are required to pay, you must have a thorough understanding of all of the deductions that you are permitted to apply to the income from your firm. These will be totally dependant on a number of different factors; you should take the time to read up on them in order to figure out which ones relate to your company.

    Avoid Pushing Your Luck

    You might overhear other business owners and operators discussing some instances in which they may have exceeded the bounds of acceptable deductibles and expenses while still getting away with it. Excellent, and best of luck to them, unless, of course, their books are scrutinised at some point in the upcoming few years.

    Be confident in what you're going to present to the ATO; there's no need in getting worked up and perspiring over something that will end up saving you a total of one hundred dollars.

    Keep a Copy of Everything You Own on the Cloud

    This involves scanning any and all paper receipts and documents, as well as any and all digital receipts and documents, adding them all to a folder, along with locally saved records such as profit and loss statements and other business-related spreadsheets, invoices, and the like, and saving everything to a cloud-based file storage service such as Dropbox or Google Drive.

    Put Some Money Aside Each Month to Pay Your Taxes

    When the time comes to file your taxes, if you have already set aside a sufficient sum of money in preparation, you won't need to worry about how you're going to pay the cost. There is nothing more stressful than being in a position where you have no cash on hand but the ATO is demanding several thousand dollars from you.

    Book Online Through MyTax


    Maintain as little complexity as possible and make use of the myTax online service made available by the Australian Taxation Office (ATO). This is effectively the quickest and easiest way to submit your return (because let's face it, who likes to drag out the process?!).

    Use A Professional Accountant's Assistance

    If you don't already have an accountant, it is essential to conduct some research in order to get someone who has a satisfactory amount of knowledge, particularly with sole proprietorships, in order to handle your company's financial matters. This information ought to be available on their website; however, if it isn't, you can enquire about it when you have your initial conversation with them; yet, you should make sure to enquire about their areas of expertise before you tell them the kind of business you run before you do so.

    Investing in Assets Relating to Your Business Can Help You Pay Less Tax

    As tax season gets closer, if you need to buy a few assets that will really help your business succeed, doing so now will help you pay less tax later on by reducing your overall taxable revenue.

    How to Pay Tax as a Sole Trader While Taking Full Advantage of Your Allowable Deductions

    One of the primary advantages of operating a firm as a sole proprietor is the increased flexibility it affords in terms of management. This freedom also applies to your tax duties, which, in comparison to those associated with other business forms, are significantly less complicated.

    One of the questions that we are asked the most frequently during the year is "how can a sole trader pay less tax?"

    This article will detail some critical ways for sole proprietors to reduce their tax liability, so that they can pay the least amount of tax possible during the current fiscal year.

    Your tax accountant may assist you in reducing the amount of tax that you are required to pay, allowing you to keep more of the money that you have worked so hard to acquire. Continue reading to learn more about how we can assist you with tax preparation, and book a free tax strategy consultation for your business that will last for ninety minutes.

    What Exactly is a Sole Proprietorship?

    When you run a firm as a sole proprietor, you are both the owner and operator of the company. You will normally conduct business either under your own name or the name of your company, given that you are the owner and operator.

    It's possible that you're a self-employed freelancer or a contractor who runs their company out of their own residence as their base of operations.

    Although running a sole proprietorship normally entails working on your own, it is possible to bring on personnel. But despite this, you retain full control over your company and are responsible for any and all legal repercussions.

    When it comes to tax deductions, sole proprietors are in a favourable position because they are able to deduct the vast majority of their direct company expenses. The vast majority, though not all

    The following is a list of some common expenses that you can claim, as well as some expenses that you possibly did not realise you could claim.

    Making a Claim for Your Business Operating Costs as a Sole Trader

    To put it another way, you should be able to deduct the vast majority of the costs you've racked up in order to create income. This covers costs such as those associated with your computer gear or software, as well as those associated with equipment, vehicles, and even rent.

    If you are able to reduce the amount of taxable income associated with your tax file number by claiming these operational expenses as tax deductions, then this signifies that the amount of taxable income has increased. This, in turn, results in a reduction in the total amount of tax that you are responsible for paying.

    However, this does not imply that you should go out and spend frivolously just so you may take advantage of a tax benefit. You are still spending money, which reduces the amount of money you will make in the end. And the lower your profits, the less cash you will be given as a result.

    If you are thinking about making a purchase for the sole purpose of lowering your tax burden, you should carefully consider whether or not the item is genuinely required.

    As a Sole Proprietor, Prepayment of Business Expenses

    There is no getting past the fact that running a business will result in financial outlays. On the other hand, you may be able to pay part of these costs in advance.

    Therefore, it is possible that you will be able to pay for things such as your rent, service contracts, insurance, conference bookings, or subscriptions to any professional associations up to a year in advance.

    Because of this, you won't have to be concerned about them the next year, and instead, you'll be able to deduct the cost of these expenses from your taxes for the current fiscal year.

    If you do decide to go with this alternative, the total sum must be greater than $1,000. It does not cover salaries or wages, nor does it account for any costs incurred as a result of state law.

    Acquisition of Assets as a Sole Trader

    Since you are operating your firm on your own, it is likely that you will need a number of significant assets in order to keep it going. This includes things like trucks, laptops or desktop computers, and other necessary equipment for running your business, such as cash registers and cash.

    If the total revenue of your company is less than fifty million Australian dollars per year, then these assets are eligible for the quick asset write-off offered by the Australian government. This enables you to claim the cost of these assets as sole proprietor tax reductions rather than as depreciation charges throughout the course of their lifetimes, saving you money on your taxes.

    Find out what percentage of this asset's usage is for your company, and you'll be able to deduct that amount from your taxes for the current year. All you have to do is figure out how much of this asset's use is for your company.

    The Coronavirus Economic Response Package Omnibus Bill 2020 was passed on March 24 of this year, which considerably raised the instant asset write-off level from $30,000 to $150,000 per asset. This increment was initially available through the 30th of June in 2020, however it has been extended until the 31st of December in 2020. In addition to this, it is essential to be aware that the limit for passenger automobiles has been set at $57,581 as of recently.

    This is how the process goes.



    Because your company is dependent on you being mobile, you decide to purchase a vehicle that costs thirty thousand dollars. If you utilise your car for work-related activities 80% of the time, then you can write off $24,000 of the cost of this purchase as an asset for your company. After that, you can take a $24,000 deduction from the total amount of income that is subject to taxation for the year.

    You are still eligible to obtain a tax deduction for the amount in the current fiscal year even if you purchased the vehicle using one of the financing options available to you.

    Contributions to Superannuation for Sole Proprietors and Partners

    Contributing to your superannuation fund not only increases the amount of money you have set up for your retirement, but it also helps you pay less in taxes.

    A tax deduction for retirement savings can be claimed for contributions of up to $25,000 by sole proprietors. If you are over the age of 60, you are eligible to receive up to $35,000.

    It is also very simple to accomplish. When it comes time to file your tax return, all you have to do is make a donation to your super fund and then list that contribution as an expense on your return. Then, at the end of the year, register with your super fund the amount that you desire to claim as a deduction for the previous year. After this is reviewed and accepted, you will be entitled to deduct it from your taxes.

    Get in touch with your superannuation fund in order to request the appropriate paperwork for claiming a tax deduction for personal payments.

    When Operating as a Sole Trader, Writing Off Unpaid Debts

    In the uncertain environment that COVID-19 currently possesses, companies all around the world are beginning to feel the strain of mounting bad debts.

    If you operate your business as a sole proprietor, you have the ability to deduct bad debts from your taxable income. Having said that, you are need to keep records of the date when the debt was cancelled, after which you can claim the tax deduction for that specific fiscal year.

    On the other hand, this issue is more complicated than only having to wait too long for a paycheck. You are required to be able to provide evidence that you have made reasonable efforts to collect the debt. These are the following:

    • Keeping a record of every interaction with the debtor
    • The existence of reminder notices as evidence
    • Evidence of the steps they've done to ascertain their current financial situation
    • A professional recovery firm may be hired to handle any official debt recovery processes, including collection of delinquent debts. After a period of ninety days, if a debt cannot be recouped, you want to give some thought to employing a business such as Debt Recoveries Australia.

    In light of this, you should make it a point to document every interaction you have with a debtor, just in case. If you have the requisite evidence that indicates you are sitting on a bad debt, then you should be able to claim this debt as a tax deduction. If you do not have this evidence, then you cannot claim this debt as a tax deduction.

    Additional Deductions Available to Sole Traders

    You may not have been aware of certain additional opportunities to reduce your taxable income that are available to you in addition to the strategies that have been detailed above. This may include deductions such as the following:

    • Expenses incurred by a company that are not related to its assets, such as advertising
    • The bills for the phone and internet
    • Home office overhead costs
    • If you run a business out of your house, you should keep up with any necessary home repairs or maintenance
    • Costs incurred by the bank and interest accrued on your accounts
    • Travel costs for business
    • Costs associated with education and membership in professional organisations
    • Insurance

    In addition to this, one straightforward item that you can deduct is the cost of your accounting services.

    Employing the services of a qualified tax accountant and paying for sound guidance not only qualify as legitimate tax deductions but also almost certainly result in the accumulation of additional tax breaks.

    Therefore, when the time comes to file taxes, it is in your best interest to get in touch with the appropriate accountant.

    Sole trader tax rate
    Taxable income Tax on this income
    0 – $18,200 Nil
    $18,201 – $45,000 19 cents for each $1 over $18,200
    $45,001 – $120,000 $5,092 plus 32.5 cents for each $1 over $45,000
    $120,001 – $180,000 $29,467 plus 37 cents for each $1 over $120,000
    1. Claim operating expenses when you incur them. ...
    2. Prepay some expenses this year to reduce taxes. ...
    3. Consider capital expenses (asset purchases) ...
    4. Claim the instant asset write-off. ...
    5. Bite the bullet and write off any bad debts. ...
    6. Use concessional contributions to superannuation. ...
    7. Do a stocktake.

    If you operate your business as a sole trader, you must lodge a tax return, even if your income is below the tax-free threshold. This includes: tax return for individuals including the supplementary section. business and professional items schedule for individuals.

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