Some basic tax advice please...

[amber888]

Hi, I started selling some items initially as a hobby but it has taken off and now I am considered a business. This has happened in the 08-09 financial year. I have never declared anything or applied for an ABN but I have been trading for the past 11 months. I am now getting ready to do my tax for the year and don’t know where to start. Revenue from my business for the past 11 months is about $10,000 so it’s not much but I want to do the right thing. I have kept all business related receipts which total about $3,000. So profit will be approx $7,000. I have many questions and really need some advice;

- Do I have to get an ABN or can I claim it on my personal tax? (I’m a sole trader)

- Can I claim back GST on my expenses even though it was the last financial year?

- Will I be penalised for not declaring myself as a business in the past four quarters?

- Do I have to register a business name?

- Will Centrelink assess the revenue or profit?

I am happy for anyone to help me even if you can only answer part of my problem. All comments are welcome and much appreciated. Thank you

[kathiemt]

Amber, do you have an accountant? If not, you really do need one. Their fees are tax deductible and a good accountant will help you to make the right decisions.

Unless there are accountants here, none of us are really qualified to give that kind of advise but we might be able to give you general comments.

ABNs cost nothing to get and you can apply online. My daughter provides teaching services and consulting on a casual basis and she has an ABN and it is used for her tax papers.

My understanding is that if you're not registered for GST you cannot claim it. But I could be wrong on that (perhaps check the ATO website).

You don't have to register a business name, you can legally operate under your own name. But if you do get one you'll need to get a bank account in that name so that cheques or payments made out in the business name can be deposited.

I can't answer re Centrelink as I haven't had to deal with them for many years.

All the best with your plans.

[Numberz]

Hi Amber, you definitely need some professional advice but I will give you some basic principals.

• If you're operating a business (not a hobby) you need an ABN
• If you're operating as a sole trader, rather than a company, the ABN will be in your name and the profits will be taxable on you as an individual
• You can register a trading name and link it to your ABN - but if using your own name this isn't necessary
• You can apply for an ABN yourself and it doesn't cost anything www.abr.gov.au
• If your turnover is, or is expected to be, $75k in a 12 month period you must register for GST. Otherwise you may do so voluntarily. Unless you are registered you cannot claim for GST on your expenses

I hope this helps a bit but I can't urge you enough to find an accountant, and the sooner the better given that you have been in business for almost a year.

All the best
Bruce

[Lis Sowerbutts]

Originally Posted by Numberz

Hi Amber, you definitely need some professional advice but I will give you some basic principals.

• If you're operating a business (not a hobby) you need an ABN

I understood that the only advantage of an ABN is that if you invoice an Australian business without one they will withhold 45% of the invoice for tax. If the OP is not invoicing - and its sounds like he isn't - what's the point?

[Numberz]

Originally Posted by Lis Sowerbutts

I understood that the only advantage of an ABN is that if you invoice an Australian business without one they will withhold 45% of the invoice for tax. If the OP is not invoicing - and its sounds like he isn't - what's the point?

ABN registration isn't compulsory - unless you need to be GST registered (ie $75k turnover). Lis, you're right in that your customers will withhold tax at the top marginal rate (46.5% incl Medicare) which obviously a small business would not want - if Amber is not selling to businesses and only making cash sales (below $75k pa) it's probably not necessary (though still recommended). Not having an ABN is like not having a registered business but it all depends on your market as to whether this is an issue.

My comment really referred to the fact that, to survive, a small business would generally expect sales of more than $75k, but this obviously depends on the individual's circumstances.....

[FletcherTax]

Hi Amber, I've had quite a number of clients with a similar situation to yours and would advise to seek an accountants advice specific to your particular circumstances. There is no straight/basic answer for this one I'm afraid, with certain traits being viewed as significant between deciding whether you run a hobby or a business. Happy to help you sort it out one way or another and prevent any unnecessary expense along the way. Please feel free to email us on mail@fletchertaxaccountants.com.au