So you have a steady flow of income but you’re stuck on how to pay yourself? First it’s important to understand what structure your business is operating under, and this will impact how you can pay yourself.
In this tax tip, we will look at three of the common business structures, being; sole trader, partnership and company, and how you can pay yourself under each of these.
As a sole trader you are the individual operator and from the tax office’s viewpoint, there is no distinction between you and the sole trader – your sole trader is attached to your own personal tax file number. All the money that you make from your business (less tax) is yours. Continue reading “#TaxTipTuesday: I have my own business. How can I pay myself?”
The due date for your tax return depends on how you answer these three questions:
- What type of tax return are you lodging – i.e. individual tax return, partnership, trust or company
- Do you have any tax returns outstanding, or have you been penalised in the past for lodging your tax return late
- Who is lodging your tax return – are you lodging your tax return yourself? or are you lodging your tax return through a tax agent (such as Nudge).
If you are lodging your tax return yourself
If you are lodging your tax return yourself, generally it is due by 31st October (for individuals and trusts) and 28th February (for companies). However, if a tax agent is preparing and lodging your tax return for you, then generally you will receive an extension. Continue reading “#TaxTipTuesday: When is My Tax Return Due?”
If you are selling a product or service online, for example Ebay or Etsy, you first need to be able to determine whether you are operating as a hobby or a business.
What is the Difference?
A hobby is considered a spare time activity pursued for pleasure. Whereas a business requires some form of investment and enough customers to whom you can sell your product to constantly, with the intention of making a profit. Once you are a business receiving income you are required to pay tax.
How do I know if I need to pay tax?
The following checklist (click here to access to access the checklist via the ATO website) will help to assist you in determining whether you are operating as a business that should be declaring income. Each time you answer ‘yes’, the more likely it is that you are in fact operating a business, however the questions should be considered collectively rather than in isolation. Continue reading “#TaxTipTuesday: Do I Need To Pay Tax On The Money I Earn From Ebay?”
Crowdfunding is increasing in popularity amongst the startup world – but what exactly is it? This blog post will look at the background surrounding what crowdfunding is and will be followed by a later post in the coming weeks on what you need to be aware of in terms of bookkeeping, tax and recordkeeping.
What is crowdfunding?
Crowdfunding is where you fund a venture of project by raising small amounts of money from a large group of people.
What are the benefits?
There are three main benefits – (1) you can secure funds to get your business off the ground or help it enter a new phase, (2) you can test whether your business idea is viable before contributing resources to it and (3) you can build a customer base before you even launch.
How can I raise money through crowdfunding?
There are a number of crowdfunding sites which you can use, such as Pozible or OzCrowd.
What do you give in return for crowdfunding?
Generally most crowdfunded projects give something to those who supported them. This can range from the product itself to involvement in naming rights to a different secondary item. You’ll need to think through this, and the factor any of these costs into your crowdfunding budget.
It’s important to have a marketing plan in place before you begin to source financing through crowdfunding . Also, being active on social networks can help raise awareness and get invaluable feedback on your product or service.
A common area of confusion for startups and small businesses, is whether or not their new hire is in fact a contractor or an employee. It is important that the difference between a contractor and an employee is clear, as they come with different outcomes and different responsibilities.
Determining whether your new hire is a contractor or an employee
The ATO lists six factors which need to be considered in determining who is a contractor vs employee:
- Is your hire able to sub-contract/delegate? An employee can not sub-contract/ delegate and pay someone else to carry out the work, whereas a contractor can.
- What is the basis of payment? A contractor is paid for achieving a result, whereas an employee is based on hours worked/commission/price per item.
- Who provides the equipment, tools and other assets? A contractor provides the majority of the equipment, tools and other assets they use and doesn’t get paid an allowance for these. Whereas, an employee does not provide the majority of equipment, tools and other assets and in instances where the do, they are reimbursed for these costs.
- Who takes the commercial risk? Contractors take on the commercial risks, being legally responsible for their work. An employee on the other hand does not take on the commercial risks which are borne by your business instead.
- Who has control over your hire’s work? Contractors, subject to the terms in your agreement with them, can exercise freedom in the way they carry out their work. Whereas, workers are more bound by the employment terms of your business. Contractors operate independently from your startup whereas employees are part of your business.
- Is there independence?
Continue reading “TaxTipTuesday: Contractors vs Employees. What do I need to know for tax?”
Writing for the Officeworks blog ‘The Office Space‘ in our February blogpost, we look at setting up your small business budget for the 2015 year.
Some of the key things you should focus on with your small business budget are:
1. Understand what your budget is
A budget is a forecast of what your business income and expenses will be over a period of time.
2. What is the purpose of your small business budget
Like all goal setting, we set targets for what we want to achieve within a time frame. The purpose of your budget is to set the financial goals for the business and plan out how you will allocate resources to achieve these targets.
3. Is your budget just about the money?
Yes, and No. We set financial goals as we want to achieve certain targets in our business. However, one area we often see small businesses failing in is the disconnect between their business operations and their business finances. A budget allows you to allocate the resources that you need to achieve your financial goals. And the way that you do this is by looking at your operations and determining what is needed, when. Just remember, your finances are an output of the operational decisions you make in your business. Make sure that your budget has mapped out your operations and how you see your business running for financial success.
You can read the full article about small business budgets on the Officeworks blog here.
Determining whether or not your meals can be claimed as a tax deduction can be very confusing for startups and small businesses. While its not a black and white area, there are some simple tips that you can follow to determine whether or not you can claim a tax deduction.
What are the questions you should ask yourself?
- Why is the food or drink being provided? That is, what is its purpose, if it is a social setting than the chances are its entertainment.
- What food or drink is being provided? As the meal becomes more elaborate i.e, a menu with matching wines, it starts to take the form of entertainment.
- When is the food or drink being provided? If the meal is provided during work hours, this is less likely to be entertainment, however it is important to consider at this point whether or not it its social.
- Where is the food or drink being provided? If the meal is consumed on your premises then it’s not likely to be entertainment. However at a restaurant it is difficult to say it isn’t.
These initial steps are what will help you work out whether your business lunch is tax deductible. Continue reading “Tax Tip Tuesday: When is my Business Lunch Tax Deductible?”
Looking at the tax rate for your business is something many small businesses ask about. But it all depends on the type of business structure that you have. So lets get to the bottom of it:
What is Your Business Structure?
The structure of the business will determine the tax rate. The different structures include; Sole Trader (Individual), Partnership and a Company. You can read more about different business structures here.
1. What is a Sole Trader?
As a sole trader there is no separation in business ownership between yourself and the business. Therefore there is unlimited liability, so if your business can’t pay its creditors, your own personal assets could be up for sale.
2. What is a Partnership?
A partnership requires 2 or more people and like with a sole trader, the partners individually share in the business assets as well as its liabilities.
3. What is a Company?
A company has a director(s) as well as shareholder(s). The directors are responsible for the management of the company, whereas the shareholder(s) own the company. Continue reading “TaxTipTuesday: What’s The Tax Rate For My Business?”
Often small business owners ask us if they can throw out their tax records once they have lodged their tax return and received their Notice of Assessment from the ATO. The answer is no – definitely not!
Small business owners are required to keep their records for much longer than that. As a general rule of thumb, you must keep your records for the later of five years from when your tax return is due to be lodged, or when you lodge your tax return. Continue reading “Tax Tip Tuesday: How long do I need to keep tax records for?”
A lot of new small business owners think that a BAS (Business Activity Statement) is for them to record GST only. There are, however, three key sections (and even more for particular industries such as wine and farming/transport) that are included in a BAS. These are:
1. GST – this is where you record the net sum of (a) GST you have collected from sales and (b) credits for the GST you paid on purchases.
2. PAYG Withholding – When you pay staff wages, you are required to withhold tax from their salary. The tax withheld from their salary is included on the BAS as a PAYG Withholding amount. Continue reading “Tax Tip Tuesday – What is included in a BAS?”