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ATO reporting for Sole Traders

Greetings to everyone! Today we will discuss what you need to report to the ATO as a business owner.

First part of our story you can find here: How to open a business as a sole trader

Tax return

There is no separate tax return that you have to file on top of your individual tax return as a sole trader. All of your business related information will be included in your Individual Tax Return. Previously, as an employee, you reported your salary under section INCOME and your expenses under section DEDUCTIONS. Now your tax return will be completed differently. All your income and expenses related to your business have to be included in a section called Business and professional items

This ATO link will help you to complete this schedule: Business and professional items schedule

This ATO link will help you to understand your income and deductions you can claim: Income and deductions for business

Otherwise, you always can ask your accountant for help.

If you are preparing and lodging your tax return yourself, you need to lodge it no later than 4 months after the end of the financial year (31st of October). If your accountant is doing it for you, then the due date will be 8.5 months after the end of the financial year (15th of May).

BAS (Business Activity Statement)

Depending on your registration you will lodge your BAS monthly, quarterly, or on an annual basis. Your BAS needs to include your total sales, GST reporting, Salary paid to your employees and PAYG Withheld on it (if you are paying salary), PAYG Instalments (your upfront income tax instalments), FBT (Fringe Benefit Tax, if you are providing certain benefits to your employees), other taxes, if registered (Luxury car tax (LCT), Wine equalisation tax (WET), Fuel tax credits)

Please note – as a sole trader, you can’t pay a salary to yourself. Instead, all net profit for the year will be your income.

STP (Single Touch Payroll)

If you have employees, you will need to report wages and superannuation paid to the ATO. This way your employees will receive their salary and superannuation information via MyGov. Here is information about STP requirements from ATO:  Single touch payroll

As reporting is digital, you will need to find a STP software. Here is a list of low cost software providers if you have 1-4 employees: No cost and low cost solutions for single touch payroll.

You will file your payroll information with the ATO each pay.

Also, at the end of each year you will need to make a final declaration via STP software by 14th July if you have more than 20 employees, or by the 31st of July if you have 19 or less employees.

TPAR (Taxable payments annual report)

You may need to lodge a TPAR by 28th August each year if you are a business providing: building and construction services; cleaning services; courier services; road freight services; information technology (IT) services; security, investigation or surveillance services. For more information: Taxable payments annual report

FBT (Fringe benefits tax)

If you provide benefit payments to your employees other than salary/wages, you may need to report and pay a separate tax, FBT, by 21 May: Fringe benefits tax

How to open a business as a sole trader

Today I would like to answer the most common question  – how do I open a business easily, with minimal costs? The answer is – to become a sole trader! Just remember – by choosing this structure, you are personally bearing all risks associated to your business (see my post Business Structure 2 – Risk)

You will need just a few hours to understand what you need to do and to become a business owner.

To register you will need to go through the following steps. Please remember, if you find a non-government website who is offering a registration – they will ask you for an additional service fee.

ABN (Australian Business Number).

You can apply for an ABN through the government site: https://www.abr.gov.au/business-super-funds-charities/applying-abn. This procedure is free of charge if you do it yourself on this website. If you will provide all your details, including your TFN (Tax File Number), you will receive your ABN immediately upon finishing the application.

GST (Goods and Services Tax) registration.

You have to apply for GST if your annual income (before any deductions) from the business exceeds $75,000 . If your income is below $75000 this registration is voluntary. But I highly recommend to register for GST if your sales are GST-free (eg. basic food, some education, some medical and healthcare products, some childcare services, exports and services to non-Australian residents). This way you will receive a refund on the GST paid on your purchases, without paying GST on income. You can register for GST at the same time as your ABN application.

PAYG Withholding registration

You will need to register for PAYG if you will have employees. You can do it at the same time as ABN registration (you will be asked a question if you wish to do so at the end of ABN registration) or later, when you actually will hire employees.

Business Name registration.

You will need to register your business name only if your business name is different to your own name, and want to secure it so that no one else can use it. You can register your business name on the following government website: https://asic.gov.au/for-business/registering-a-business-name/. Registration can be for 1 year ($37) or 3 years ($87)

ATO business portal.

You will need it to lodge some reports and statements, and to communicate with the ATO. Full information you can find on the ATO website: https://www.ato.gov.au/business/business-portal/

You will need to download a MyGovID (it is different to MyGov) application on your phone and connect to RAM (Relationship Authorisation Manager) to have access to your ATO business portal. You can find out more about MyGovID here:  https://www.mygovid.gov.au/

Congratulation, you are a business owner!!

So, now you may decide on other attributes of a business:

  • separate bank account for business purposes only (+ saving to accumulate fund to tax payment)
  • your website,
  • logo,
  • business cards,
  • software to record your income and expenses (e.g. Xero) or just use Excel,
  • marketing strategy etc

Your reporting to the ATO now will be different compared to as an individual, and we will discuss this in a separate post ATO reporting for Sole Traders.

Also, here you can find information on How to close a Sole Trader business.