You’re a one-person operation, an independent business owner, a sole trader if you will, and you’re wondering what the heck your obligations are when it comes to the ATO. Well, you know you need to pay taxes, but you’re not exactly sure how or what kind. Plus, aren’t there forms to be on top of? Registrations and calculations and what not?
Don’t worry – you’ve come to the right place. We’re going to take a look at everything you might need to lodge with the ATO, depending on your circumstances (because your case will be different from the next person’s).
Let’s get this party started!
- Tax Returns
- Business Activity Statements
- Instalment Activity Statements
- Taxable Payments Annual Report
- Is that everything?
Tax Returns
What is a tax return?
A tax return is a way for the ATO to look at the full picture of your income and business outgoings, as well as all the tax you’ve paid, throughout the financial year. As a sole trader, you are your business, meaning that both your business and your ‘personal’ income are included in the same tax return. No need to lodge separately!
Getting your taxes bang on is a difficult thing to do if you’re not a PAYG employee (and sometimes not even then). But don’t worry – if you’ve overpaid income tax, you’ll receive a tax refund. If you’ve underpaid, you’ll end up owing more in tax (sorry!). A tax return is kind of like a bar tab – at the end of the night, you can use it to figure out who’s paid what and who owes what to whom.
(Don’t think too hard about that analogy.)
Better yet, if you use Hnry, we calculate your taxes as you earn, meaning you’re far less likely to end up with a surprise tax bill at the end of the financial year.
What goes into a tax return?
When lodging your annual tax return, there are two main components:
1. Declaring your income
This includes employment income, bank interest and dividend income, government payments (such as Austudy or unemployment benefits), and any foreign income.
2. Claiming expenses
In general, you can lower your taxable income by claiming business expenses – so long as you follow the ATO’s rules. This might be home office expenses, uniform costs, your phone bill (if your phone is required for your business), etc. Keep those receipts handy throughout the year, perhaps store them in a safe little box, because you’ll want to make sure that a) the costs you’re claiming are correct and b) you have proof of these payments, as the ATO requires you to keep these records for up to five years.
💡 Alternatively, you can raise expenses through the Hnry app; we manage them for you, and we’ll digitally store your receipts for the required five years.
From there, the ATO will let you know if you have anything outstanding, like any income tax still owing, or if you’ve underpaid your Medicare Levy, or if you owe anything on your student loan. Basically, it’s time to settle the bill.
How do I lodge a tax return?
You can either lodge your tax return yourself, using the online ATO system (which will be linked to your MyGov account), or you can work with a tax accountant who will charge a fee – and you can actually claim this as an expense in the following financial year.
Alternatively, you could knock on our door. For just 1% +GST of your self-employed income, capped at $1,500+GST a year, we’ll:
- Calculate, deduct, and pay your income tax, student loan repayments, Medicare Levy, and superannuation contributions (optional)
- Complete and lodge your activity statements (including your BAS) (if applicable)
- Complete and lodge your tax return annually
Basically, we make it so you never have to think about tax again!
Activity Statements
What are activity statements?
Lodging an activity statement is your way of reporting and paying your GST, PAYG instalments, PAYG withholding tax, and various other taxes.
If you’re GST registered, you’ll need to regularly lodge a Business Activity Statement (BAS). If you’re not GST registered, you’ll need to lodge an Instalment Activity Statement (IAS).
Remind me about GST again?
Collecting GST is for anyone earning over $75k of business income annually. Once you’re registered, you need to add this surplus (10% of whatever you’re charging for a good and/or service) to your prices and hold onto this amount to pay the ATO in your BAS (which is normally every quarter).
Ok, so what’s PAYG?
There are PAYG instalments and there is PAYG withholding. They’re two different things, and we’re going to break both down so you never get confused again (though, we can’t make any promises).
PAYG instalments are Pay As You Go taxes, and it allows you to pre-pay your income tax spread throughout the year, rather than a lump sum at tax time. You can do this via your quarterly BAS lodgements. Or if you use Hnry, we’ll pay your taxes as you make money, which takes the hard yards out of PAYG and avoids that pesky lump sum. A double win in our books.
PAYG withholding is relevant if you have any employees you need to pay. In this process, you withhold a portion from the payments you make to your staff in order to pay their tax throughout the year. You also lodge this via your quarterly BAS. Essentially, you’re making tax time easier for your staff and ensuring they don’t end up with a hefty tax bill at the end of the financial year. You’re the best boss!
Who needs to lodge a BAS?
If you reckon you’ll earn more than $75,000 in self employed income in the next 12 months, then you need to register for GST immediately. Anyone who is registered for GST is required to lodge a BAS.
If you’re not registered for GST, because you earn less than $75,000 in a financial year, then you won’t be required to lodge BAS.
Who needs to lodge an IAS?
An IAS is for those who aren’t registered for GST (and therefore aren’t required to lodge a BAS), but still have other tax obligations such as PAYG instalments or withholding, and need to send this information to the ATO.
Like BAS, there are key monthly dates for IAS you should make note of so you don’t turn your homework in late.
When do I lodge my BAS/IAS?
BAS/IAS can be lodged monthly, quarterly, or annually, depending on your needs.
Thankfully, the ATO lists these due dates for you. Just mark your calendars, and you’re good to go.
Taxable Payments Annual Report (TPAR)
If your business is in a certain industry (like construction or cleaning) and makes payments to contractors, then this section is for you.
What is a TPAR?
A TPAR ensures that contractor numbers and business numbers all match up in the Australian Business Register (ABR) system. This is to make sure that the amount you’re claiming to have paid to these contractors is identical to the amount they’re claiming to have made from you. Lodging this report to the ATO is just you acknowledging and reporting these payments to the taxman.
This bad boy is due on 28 August every year – the start of Virgo season, which comes as no surprise. Virgos love a good report.
Is that everything?
Basically, yes. Those four points we unpacked may or may not be relevant to you depending on the type of business you run and the amount of income you earn annually. It can all feel a little daunting, but it doesn’t have to be.
An alternate option (if you’re a fan of doing less tax admin) would be to use Hnry (yep, that’s us!).
For just 1% + GST of your self-employed income, capped at $1,500 a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:
It sounds too good to be true, but it’s not. It is both good and true – woohoo! Join Hnry today.
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