Difference between being a sole trader and registering a business

[rob30]

I run a small internet based hobby business and i am looking to grow it and make some money out of it hopefully. At this stage i'm not sure whether i should register it as a company or be a sole trader. What is the difference?

Thanks in advance
Rob

[Robert Gerrish]

Hi Rob, I have no doubt a number of people will jump in to reply to this. A good start may be to review the links in this article as there some differences by state.

[rob30]

Thankyou very much

That explained it nicely for me. There is just one thing i'm not quite sure on. Does Sole Traders get the same tax breaks as companies do? For example, if i wanted to lease a car as a sole trader would i still be able to claim the same as a company would?

Rob

[ray_223]

I'm no expert (I'm sure others will post later) ...

Any income received as a sole trader is taxed 100% in your personal income tax.

Any expense incurred in your sole trader business can be claimed as with any other business structure.

[rob30]

Cheers

One last thing

I work full time for a employer so what would be the percentage of tax i would pay on the business? Does it increase the tax percentage because its a 2nd income or is that a wives tale?

Rob

[Warren Cottis]

Rob

All income to which only you are entitled (salary, business income, interest, share dividends etc) increases your taxable income and consequently your tax rate.

[rob30]

So say my job for a employer paid $65k i could only earn $25k through my business to keep my tax percentage at 30%. If i went over and earned say $93k or there abouts just as a example, could i lease a car for my business and reduce my earnings back under $80k again keeping the percentage to 30% instead of 40%?

[ray_223]

Your best bet is to go see an accountant. When it comes time to do your tax an answer like ... "people on the flying solo forums said I could!" won't cut it

One way to do this for free is go make an appointment with your local Business Enterprise Center (BEC) to talk about your business idea ... after doing this you should be able to get 1 free appointment with a local accountant organised through your local BEC.

[KarenC]

Definitely get a good accountant -
eg sole trader re use of car:
- registered in business name
- keep log book for 12 weeks and work out percentage use
eg if it's 60% business, 40% personal, then you can only claim 60% of the car costs (depreciation is also divided into 40% of value first year, 30% second, 30% third year for Simplified Tax System) or monthly lease payments and 60% of petrol costs etc. You have to separate these values for every costing including car services and more.
- if your home is the official 'office' then going between 2 places of work is considered 'business', but you must talk to a good accountant about this because getting things right from the beginning will make your life a whole lot easier.
Also, setting up recurring transactions in MYOB Accounting (or whatever you use) as a system is a bonus so you only need to put the numbers in each month.
GST and PAYG tax needs to be put away in a separate bank account in order to be there when you need to pay it back to the government. This means you don't accidentally spend it and if there is any left over, it is a bonus.
There's loads more, but the main thing is that getting the PAPERWORK CORRECT first and having a good relationship with a dependable accountant that you can talk to, will make your life a lot easier as a sole trader.
Also, the ATO has good info at www.ato.gov.au (their website is currently offline for maintenance and will return on 5 January 2009)

[Warren Cottis]

Originally Posted by rob30

So say my job for a employer paid $65k i could only earn $25k through my business to keep my tax percentage at 30%. If i went over and earned say $93k or there abouts just as a example, could i lease a car for my business and reduce my earnings back under $80k again keeping the percentage to 30% instead of 40%?

Rob, Rob, Rob,
what are you saying? Only earn $25k business income to keep your tax at 30%?? ... yikes.

Forget the tax!!! Go for $500,000 business income and pay your tax with $250,000+ in your pocket at worst even if you stay a sole trader with no tax planning sophistication.