Sole Trader Tax Considerations
2
Are you a sole trader?
•
If you run your own personal
business, or are making an income
outside of ‘employment’, you may be
considered a sole trader.
3
•
For example, if you earn
income through Uber or
other apps, you are likely a
sole trader.
•
Other examples include
tutoring, teaching guitar,
etc.
Examples
4
Tax Considerations
•
As a sole trader, you must consider:
•
Whether you receive Personal
Services Income
•
Whether you are part of a Personal
Services Business
•
Deductions
•
Records
5
Personal Service Income (PSI)
6
What is PSI?
Personal services income or PSI is income that is mainly a reward for an
individual's personal efforts or skills,
Almost any industry can receive PSI.
Some of the most common examples are:
•
Financial professionals; Accountants, Bookkeepers, Tax agents
•
IT Consultants
•
Trades workers; Plumbers, Electricians, Carpenters
•
Medical Practitioners; Dentists, Doctors, Chiropractors
7
Do you receive PSI?
More than 50% of the income received
for a contract was for your labour, skills
or expertise
You are receiving PSI and continue the next step
This presentation might not be applicable for you. But
going through test on the next slide may help you
understand whether you are receiving PSI better.
8
At least 75% of your PSI are:
•
Paid to produce specific result and
•
Required to provide the equipment and
tools, and
•
Mistakes fixed at your own expense
This presentation might not be applicable for you.
But PSI
still needs to be declared in the tax return.
Proceed to the next step
9
More than 80% of the PSI derive
from one client
If you think you can pass one of the remaining tests or if you
have unusual circumstances, you can apply for a PSB
determination.
PSI rule apply to you
Proceed to the next step.
10
10
Remaining Test for PSB (Satisfy
only 1)
If
you have more than one client, are they related or
connected? And is the work obtained by making offers to
the public or sections of the public?
Do you have any subcontractors who perform at least 20%
of the principal work? Or do you have apprentices for half
the income year?
Do you utilise a business premise?
(1) A sole trader passes the PSB
tests
If a sole trader or PSE pass the PSB tests
nothing needs to change. The entity can
continue to claim all deductions as they
had before. However, the Personal
Services Income will need to be declared
in the appropriate section of the entities tax
return.
11
11
(2) A sole trader
does not
pass
the PSB tests
If a sole trader or the PSE did not pass the PSB tests, they will need to declare all PSI on the
allocated individuals’ tax returns at the appropriate sections.
The following deductions cannot be claimed against the PSI:
•
Rent, mortgage interest, rates or land tax for their homes
•
Payments to their spouse or associates for support work
•
Any expenses not generally entitled to employees
Any income that is not PSI can continue to be treated normally, including the deductions incurred
to earn it
12
12
As a sole trader, you are entitled to
account for deductions in expenses
you incurred through procuring your
assessable income. Please keep in
mind that if you receive PSI, you
cannot make certain deductions that
would not be available to an
employee.
Deductions - PSI
13
13
14
14
G
e
n
e
r
a
l
•
Income earned from
employment would be
prefilled in item 1
•
If it is not prefilled, then it
might be filled in item 14
Deductions (PSI) (2)
D
e
d
u
c
t
i
o
n
n
o
t
a
l
l
o
w
e
d
•
rent, mortgage interest, rates or
land tax for your home
•
payments to your spouse, or
other associate, for support work
such as secretarial duties
•
expenses that you would
generally not be able to deduct
as an employee
15
15
Deductions (PSI) (3)
To ensure you are able to claim all
applicable deductions, it is very important
to keep good records. Receipts, invoices
and tax invoices should be in English, and
kept in your records for tax purposes.
16
16
Deductions (PSI) (4) - Examples
Deductions can be made for work-related expenses and
use of items.
For example, you may immediately claim for work-
related use of your tools and equipment if it costs less
than $300.
As with all deductions, it is important to have good
records to substantiate your claims.
17
17
Example
Car expenses (cars under 1 tonne)
18
18
C
e
n
t
/
k
m
•
U
p
t
o
m
a
x
i
m
u
m
a
m
o
u
n
t
o
f
$
0
.
8
5
x
5
0
0
0
k
m
•
Depreciation is
not allowed
2 Methods
L
o
g
b
o
o
k
•
Continual record for
12 weeks
•
Depreciation
allowable
19
19
Logbook Method
•
One for COVID-19 period and one for prior
•
No need to require two logbooks if there has been no
significant change to business use of vehicle - Another
logbook does not need to be done for another five years
provided nothing changed
•
Provides data for the separation of business vs private
use
•
Useful Tool: Little Log Book
20
20
What kind of expense you can
claim in car expense?
•
a car your own, lease or hire (under
a hire-purchase arrangement)
•
someone else's car
•
a motor vehicle, that is not defined
as a car.
You can claim only work-related motor
vehicle expenses you incur. You can't
claim expenses that relate to your
private use of your vehicle.
•
How we define cars and other
motor vehicles:
Cars are motor vehicles (excluding
motorcycles and similar vehicles)
that carry loads less than one
tonne and less than 9 passengers.
This definition includes many four-
wheel drives.
No Petrol Receipt?
Step
1
Fuel Consumption
from:
Green Vehicle Guide
Step
2
Fuel Price from:
AIP Annual Retail
Price Data
21
21
22
22
Take Note….
If the car is salary packaged, motor
vehicle expense cannot be deducted
ATO has given regular an effective
life of 8 years
A purchased car tax invoice is
required
23
23
ANU Tax Clinic
We are available from Wednesday to
Friday 11.30am to 2pm.
To book your appointment you can fill up
the enquiry form at our website, reach out
to us directly at
taxclinic@anu.edu.au
or
call us on 02 6125 4853.
24
24
B
o
o
k
a
F
r
e
e
C
o
n
s
u
l
t
a
t
i
o
n
For eligibility criteria and bookings,
visit
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For any enquiries contact us at
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Or call us on
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In this resource, you will learn about the tax considerations for sole traders, including personal service income (PSI). Discover if you fall under the category of a sole trader, examples of sole traders, and crucial tax considerations to stay compliant with your obligations as a business owner. Explore what PSI entails and how to determine if you receive PSI as a sole trader. Uncover essential information for managing your taxes effectively in this informative guide.
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Presentation Transcript
Sole Trader This Photo by Unknown Author is licensed under CC BY
Are you a sole trader? If you run your own personal business, or are making an income outside of employment , you may be considered a sole trader. 2
Examples For example, if you earn income through Uber or other apps, you are likely a sole trader. Other examples include tutoring, teaching guitar, etc. 3
Tax Considerations As a sole trader, you must consider: Whether you receive Personal Services Income Whether you are part of a Personal Services Business Deductions Records 4
What is PSI? Personal services income or PSI is income that is mainly a reward for an individual's personal efforts or skills, Almost any industry can receive PSI. Some of the most common examples are: Financial professionals; Accountants, Bookkeepers, Tax agents IT Consultants Trades workers; Plumbers, Electricians, Carpenters Medical Practitioners; Dentists, Doctors, Chiropractors 6
Do you receive PSI? More than 50% of the income received for a contract was for your labour, skills or expertise You are receiving PSI and continue the next step This presentation might not be applicable for you. But going through test on the next slide may help you understand whether you are receiving PSI better. 7
At least 75% of your PSI are: Paid to produce specific result and Required to provide the equipment and tools, and Mistakes fixed at your own expense This presentation might not be applicable for you. But PSI still needs to be declared in the tax return. Proceed to the next step 8
More than 80% of the PSI derive from one client PSI rule apply to you Proceed to the next step. If you think you can pass one of the remaining tests or if you have unusual circumstances, you can apply for a PSB determination. 9
Remaining Test for PSB (Satisfy only 1) If you have more than one client, are they related or connected? And is the work obtained by making offers to the public or sections of the public? Do you have any subcontractors who perform at least 20% of the principal work? Or do you have apprentices for half the income year? Do you utilise a business premise? 10
(1) A sole trader passes the PSB tests If a sole trader or PSE pass the PSB tests nothing needs to change. The entity can continue to claim all deductions as they had before. However, the Personal Services Income will need to be declared in the appropriate section of the entities tax return. 11
(2) A sole trader does not pass the PSB tests If a sole trader or the PSE did not pass the PSB tests, they will need to declare all PSI on the allocated individuals tax returns at the appropriate sections. The following deductions cannot be claimed against the PSI: Rent, mortgage interest, rates or land tax for their homes Payments to their spouse or associates for support work Any expenses not generally entitled to employees Any income that is not PSI can continue to be treated normally, including the deductions incurred to earn it 12
Deductions - PSI As a sole trader, you are entitled to account for deductions in expenses you incurred through procuring your assessable income. Please keep in mind that if you receive PSI, you cannot make certain deductions that would not be available to an employee. 13
Deductions (PSI) (2) Deduction not allowed General rent, mortgage interest, rates or Income earned from land tax for your home employment would be prefilled in item 1 payments to your spouse, or other associate, for support work If it is not prefilled, then it such as secretarial duties might be filled in item 14 expenses that you would generally not be able to deduct as an employee 14
Deductions (PSI) (3) To ensure you are able to claim all applicable deductions, it is very important to keep good records. Receipts, invoices and tax invoices should be in English, and kept in your records for tax purposes. 15
Deductions (PSI) (4) - Examples Deductions can be made for work-related expenses and use of items. For example, you may immediately claim for work- related use of your tools and equipment if it costs less than $300. As with all deductions, it is important to have good records to substantiate your claims. 16
Example Car expenses (cars under 1 tonne) 17
2 Methods Cent/km Up to maximum amount of $0.85 x 5000km Depreciation is not allowed Logbook Continual record for 12 weeks Depreciation allowable 18
Logbook Method One for COVID-19 period and one for prior No need to require two logbooks if there has been no significant change to business use of vehicle - Another logbook does not need to be done for another five years provided nothing changed Provides data for the separation of business vs private use Useful Tool: Little Log Book 19
What kind of expense you can claim in car expense? a car your own, lease or hire (under a hire-purchase arrangement) someone else's car a motor vehicle, that is not defined as a car. You can claim only work-related motor vehicle expenses you incur. You can't claim expenses that relate to your private use of your vehicle. How we define cars and other motor vehicles: Cars are motor vehicles (excluding motorcycles and similar vehicles) that carry loads less than one tonne and less than 9 passengers. This definition includes many four- wheel drives. 20
No Petrol Receipt? Step 1 Step 2 Step 3 Fuel Consumption from: Green Vehicle Guide Fuel Price from: AIP Annual Retail Price Data Total km travelled x fuel consumption (eg 10lts)/100 x fuel price per litre 21
Take Note. If the car is salary packaged, motor vehicle expense cannot be deducted ATO has given regular an effective life of 8 years A purchased car tax invoice is required 22
ANU Tax Clinic We are available from Wednesday to Friday 11.30am to 2pm. To book your appointment you can fill up the enquiry form at our website, reach out to us directly at taxclinic@anu.edu.au or call us on 02 6125 4853. 23
Book a Free Consultation For eligibility criteria and bookings, visit rsa.anu.edu.au/anu-tax-clinic For any enquiries contact us at taxclinic@anu.edu.au Or call us on 02 6125 4853 24
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