Running your own business is very exciting – the sense of freedom and control can be a nice change from being an employee at someone else’s company. However, with the freedom comes more responsibility, particularly with respect to meeting your income tax obligations. When you are self-employed, you are responsible for making Pay As You Go (PAYG) contributions for yourself using your businesses’ profits. It is important to understand the tax framework to ensure that you are being taxed the correct amount come end of financial year.
LawPath can connect you with a finance lawyer who can assist you with understanding your tax obligations.
When are you considered ‘self-employed’?
If you are a sole trader or a partner in a partnership, you are considered ‘self-employed’. As a self-employed individual, you have full responsibility for your income tax and superannuation contributions.
What income tax rate applies if you are self-employed?
As a sole trader or a partner in a partnership, the applicable income tax rate is the individual income tax rate.
As a sole trader, you will need to use your individual tax file number to lodge your tax return. The income tax rate that is applicable will depend on the amount of assessable income you declare in your return.
As a partner in a partnership, the profit of the business is split in an agreed upon manner amongst the partners. The partnership itself, whilst required to submit a tax return, does not pay income tax. Instead, once each partner has been distributed their share of the profits, that share is subject to the individual income tax rate applicable to the partner. The income tax rate that is applicable will depend on the amount of assessable income you declare in your return.
What are the individual income rates for the 2018-2019 financial year?
The Australian Taxation Office has set the individual income tax rate for the 2018-19 financial year as the following:
0 – $18,200: Nil
$18,201 – $37,000: 19c for each $1 over $18,200
$37,001 – $90,000: $3,572 plus 32.5c for each $1 over $37,000
$90,001 – $180,000: $20,797 plus 37c for each $1 over $90,000
$180,001 and over: $54,097 plus 45c for each $1 over $180,000
These rates only apply to Australian citizens. Difference rates apply to foreign residents.
Conclusion
As the person solely responsible for your income tax, it is important to remember to put aside amounts throughout the year to ensure that you can meet your income tax requirements. LawPath can connect you with a finance lawyer who can assist you with understanding your tax obligations.
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