Home – New Forums Money matters a few more tax related questions.

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  • #978651
    jezza11
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    Hi all,
    been reading the forum (and learning a lot) for a couple of days now and have decided to sign up and seek some advise that i have not yet had answered,

    a little about me,
    i have been working for wages for the last eight years and am next month finishing up and going out on my own (sole trader), i am a trade qualified electrician and i am just going through the motions of setting a few things up.

    i have a couple of questions related to tax that i have burning at me and if i could get a little insight to see if i am seeing things correctly or not.
    i will be getting my income paid into a business account and then paying my wage into my personal account each week/month, leaving my tax/gst in the business account.

    1) i will require doing a couple of courses for some tasks directly related to my work, my question is can i use my tax that i leave in my business account to pay for these courses, or do i have to use my income and then claim it back at the end of the year?
    and also if this is the case am i able to do the same for a 100% used work ute?

    thanks in advance,
    and i will be seeking an accounts advice when i have found my feet, i just want to see if i am getting my head around this.

    #1108586
    MyGreatIdea
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    Firstly, congratulations on going out on your own !!

    i will be getting my income paid into a business account and then paying my wage into my personal account each week/month, leaving my tax/gst in the business account

    Good idea to keep a separate account. When you say “paying my wage” you just mean drawing out money for your personal use? There’s no need to deduct tax from what you’re drawing for yourself.

    I would suggest that, if you can, leave more than just the tax and GST in the business account. This could then cover tools, materials, fuel etc. If you get a debit mastercard or just an eftpos card, then all your business purchases can be made directly from the business account, and it will make for a much easier time for your BAS.

    i will require doing a couple of courses for some tasks directly related to my work, my question is can i use my tax that i leave in my business account to pay for these courses, or do i have to use my income and then claim it back at the end of the year?

    You need to remember that as a sole trader you are the business and the business is you. The ATO doesn’t care which account you take money from to use for what. The point of setting up the business account is simply to make tax time easier (and to control spending so you keep the tax and GST safely unspent lol). If you leave extra funds in the business account as I suggested, then expenses such as the courses can just come straight from that account.

    and also if this is the case am i able to do the same for a 100% used work ute?

    To claim a motor vehicle you will need to keep a log book (my accountant suggested keep one for 12 weeks). You keep the log as proof for the ATO that the business use percentage is correct should they ever question it. If it turns out that you only used the vehicle for 90% business during the log book recording, then you only claim 90% of your fuel, insurance, rego, services etc.

    Hope this helps until you speak with your accountant.

    Wendy :)

    #1108587
    jezza11
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    thanks for the reply couple it.

    and yes i wont be paying my self again out of the business account to the personnel, just transferring it,

    i think my main query is am i able to use my “tax” money that i have set aside in the business account to pay for these courses/car, (knowing that they will be 100% business related) and then claim them as a (deduction, not sure if this is the correct term?) at the end of the financial year?
    Or do i have to leave all that money alone and pay my full amount of tax that i have calculated and set aside and then claim back what i have spent from my own money as if i was still on wages?

    cheers.

    #1108588
    EmbalmSkincare
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    Hi there,

    The question that springs to mind is, why would you want to touch the “tax” money?
    Isn’t the purpose of putting the “tax” money aside to have 100% of it when tax time comes and you’re not out of pocket?

    My husband is working as a sole trader (not GST registered) and I put X % of super & X % tax into a high interest online savings account everytime he gets paid (after he issued an invoice). And when I transfer it I call it “Tax 2011/2012” or “Super 2011/2012” to be able to separate it. The tax money stays there (not to be touched) until tax time comes around. And for the super money, I transfer either every 3 months or in 1 big lump sum payment before the end of the tax year to his super account.

    I personally wouldn’t touch the tax money and risk being out of pocket. I see it as “it’s not our money to use” and only when my husband does his tax return and gets a refund, the money is ours.

    Note, I’m not an accountant. I’m just mentioning this because this practise has been very handy for us over the years.

    I can also give you the example of my brother-in-law who does exactly what you’re thinking – altough he doesn’t even bother putting tax money aside – and is faced with a huge bill every time he gets his tax return done.

    In my business, I wouldn’t touch it either.

    Hope this helps! Good luck with your venture!

    Kind regards,
    Mel

    #1108589
    JacquiPryor
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    am i able to use my “tax” money that i have set aside in the business account to pay for these courses/car, (knowing that they will be 100% business related) and then claim them as a (deduction, not sure if this is the correct term?) at the end of the financial year?

    I am with Mel, I wouldn’t use the money you put aside for tax for these reasons but you are ‘allowed’ to, yes. The ATO won’t be monitoring your bank account and penalising you for using what you have called ‘tax money’ for other things, so long as any tax owing at the end of the year is actually paid.

    At the end of the day, when operating as a sole trader then all the money that comes into the business is your income, and all the money that goes out for the business are deductions against your income when you do your tax return.

    So, it’s not necessarily going to work out that your course/car expenses/deductions exactly balance out your tax money put aside. One won’t be applied straight against the other, it will be an overall picture of income and expenses, therefore working out overall tax for the financial year.

    As a really basic example… say your business earns 50K in the first financial year, from that you would claim all approved deductions for your business (including course & car, but also other business expenses) – let’s say your total deductions come to 20K for that financial year.. then in theory your taxable income is the 30K balance so you want to have enough sitting aside to pay the tax on 30K – if you have used your ‘put aside’ tax money to pay for your course/car, that’s fine – but you will still need to be sure you can pay the tax on whatever the final taxable income figure is.

    (I am not an accountant, so the above is for information purposes only…)

    #1108590
    On-the-move
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    In regards to provisions kept for taxation purposes. I am a big believer in deferring all you taxation payments until the very last date due and using the money to furthering your business plans where it suits.

    This gives you the flexibility of an interest free loan when it comes to the GST funds which you hold on behalf of the Tax office and not paying PAYG/PAYE throughout the year. Of course you need to be responsible when undertaking this kind of practice otherwise when it comes time to pay you may find yourself in trouble. Make sure you are accounting for each dollar you borrow from the tax fund and repay it before its time to pay the tax office.

    Darcy Bookkeeping & Business Services
    http://www.darcyservices.com.au

    Sunshine coast Accountants and Bookkeepers.

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