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  • #990586
    Chippy rain
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    Hi guys, Im in desperate need of advice…

    So I finally started my own carpentry business and have finished my first job. I got paid $7000 for materials and labour but now I don’t know what to do with it. (as in how to work out what gst to pay and income tax and what profits I make then)

    Do I separate what I paid for materials $3500 and put aside %10 for gst, or do I take gst off the whole $7000?

    And then do I separate materials and whats left is profit so then I take %30 out of that to keep for the tax man (income tax)??

    I feel really dumb asking but having worked as an employee all my life this is all new to me.

    Any help would be much appreciated

    Cheers

    #1177712
    Past-Member
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    Hi – you do not put aside or pay GST unless you are registered for it.
    That means your invoice must say no GST. Currently, If you turn over $75000 gross you have to register for and pay GST. In your case this does not apply.

    It is a good idea for you to have a separate savings account to ‘pay your prospective tax into’. If you end up not needing it at tax time, then you can save, spend or re-invest it into the business. If you have to pay tax, then you will have the funds.

    As a sole trader ALL income is put together for tax. Eg you might earn $48,000 as an employee for someone else and $22,000 as a solo. Put them together and work out the tax on the total minus any bonafide expenses. However, if you earn less than $20,000 currently solo, you won’t be able to claim business expenses this financial year – but they can be carried forward. This is why it’s good to have a good accountant right from the beginning for tax.

    I am not an accountant – so you should get professional advice or check with the ATO at http://www.ato.gov.au

    All the best.

    #1177713
    Chippy rain
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    KarenC, post: 206881 wrote:
    Hi – you do not put aside or pay GST unless you are registered for it.
    That means your invoice must say no GST. Currently, If you turn over $75000 gross you have to register for and pay GST. In your case this does not apply.

    It is a good idea for you to have a separate savings account to ‘pay your prospective tax into’. If you end up not needing it at tax time, then you can save, spend or re-invest it into the business. If you have to pay tax, then you will have the funds.

    As a sole trader ALL income is put together for tax. Eg you might earn $48,000 as an employee for someone else and $22,000 as a solo. Put them together and work out the tax on the total minus any bonafide expenses. However, if you earn less than $20,000 currently solo, you won’t be able to claim business expenses this financial year – but they can be carried forward. This is why it’s good to have a good accountant right from the beginning for tax.

    I am not an accountant – so you should get professional advice or check with the ATO at http://www.ato.gov.au

    All the best.

    Thanks for the input Karen. I am registered for GST though as I plan on making over $75000 gross. So what do I do. Take The GST off the whole $7000 I made or just materials?

    #1177714
    MyGreatIdea
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    You shouldn’t be “taking off” any GST.

    When you wrote out the invoice did you show the labour, then the materials, a subtotal, 10% GST, then the final total? If so, you’d know how much to put aside for GST.

    I’m assuming that you just quoted a total amount of $7000 including GST? If so, then divide the $7K by 11 to give you the GST amount of $636.36. So your invoice was actually for $6363.64 plus GST of $636.36 for a total of $7000.

    If you are registered for GST then you must charge GST on your whole invoice, including materials.

    Wendy :)

    #1177715
    Past-Member
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    Further, here are some links.

    ATO: How to invoice – download the pdf
    https://www.ato.gov.au/Business/Bus/How-to-set-out-tax-invoices-and-invoices/

    ATO main business section
    https://www.ato.gov.au/Business/

    The ATO will send you an email / letter telling each three months if you are registered. If you wish to do your BAS yourself (Business Activity Statement) then you should be using software that helps you make drafts of it (Xero and MYOB and others do this) with figures that you copy into the online BAS each three months. (There is an option for 12 months, but that’s harder to manage if you haven’t put enough money away.) To pay BAS online you must also be registered for AUSKEY. The ATO website advises on all that.

    Get help to set this all up now before there are problems. It’s really important to start your accounts off the correct way.

    #1177716
    Chippy rain
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    Couple It, post: 206891 wrote:
    You shouldn’t be “taking off” any GST.

    When you wrote out the invoice did you show the labour, then the materials, a subtotal, 10% GST, then the final total? If so, you’d know how much to put aside for GST.

    I’m assuming that you just quoted a total amount of $7000 including GST? If so, then divide the $7K by 11 to give you the GST amount of $636.36. So your invoice was actually for $6363.64 plus GST of $636.36 for a total of $7000.

    If you are registered for GST then you must charge GST on your whole invoice, including materials.

    Wendy :)

    Thanks Wendy. Yes I did my invoice like you said. I use software that automatically adds gst, at the same rate you said 1/11 but forgive me for sounding dumb but I thought it was 10% which would make it $700?

    I will be using an accountant but Not for a few months so just wanted to stay on top of things.

    So after I take gst off the entire bill, then seperate my materials cost the money I’m left with is profit, correct? So how much should I set aside for the tax man? Roughly 30% of my profit? Is that enough

    #1177717
    Anonymous
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    Hi Chippy,

    Congratulations on completing your first job! What a great feeling :)

    It sounds like it would be a good idea to invest some of the cash in consulting an accountant or bookkeeper to help you set your books up properly and streamline the admin going forward. Alternatively a small business management course might be a good idea – there is lots to learn, and having a trusted expert to lean on will never hurt (although of course you’re also welcome to ask questions here any time).

    The GST calculations can take some time to get your head around, but in a nutshell, GST is a 10% tax that you add on to your price and collect on behalf of the government. So, if a job is $100…

    Job: $100
    Add 10% (multiply 100 x 1.1) = $110 (this is what you collect from customer)
    Your portion: $100
    Government’s portion: $10

    But if you want to calculate this backwards, you can’t simply divide the amount you collected by 10 to arrive at the GST. For instance, in the example above where you collected $110 from your customer, if you divide that amount by 10, you’ll arrive at $11, and end up giving the government too much money. (Never a good thing!!)

    Instead, as Karen suggested, divide the amount you’ve collected ($110) by 11, which to arrive at the GST component (i.e. 110/11 = 10) and then multiply that figure by 10 (i.e. 10 x 10 = $100) to arrive at the portion of the payment you collected that belongs to your business.

    I hope that helps for this first payment you’ve received. Going forward, I think you’ll find it clearer if you make sure your invoices are set up properly. This article is a great reference for that: Business invoicing: How to create an invoice.

    Best of luck for your new venture,
    Jayne

    #1177718
    ThexArm
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    Congrats Mate on completing your first job.

    You already have received some very sound advice and start looking for a good bookkeeper and you will find a suitable one by the time you are ready. You will greatly benefit having a bookkeeper in managing all your paper work and numbers.

    All the above advice was related to your income but you can also offset part of GST on the expenses you have incurred. It gets little complicated.

    For Example: You have purchased materials for a job for $550 (incl GST) there is $50 GST portion you paid. Later when you do a job using these materials and charge the customer $$1,100 (incl GST) there is $100 GST portion you have collected. When you lodge your BAS, you pay to ATO the difference $50. GST collected $100 minus GST already paid $50.

    For Income tax obligations, I think you needt to register for PAYG with ATO. This will allow you to pay part of your income tax upfront. How much of tax you want to withhold is very complicated calculation. To make it simple, lets say you are planning to make $100,000 taxable income in your first year. Calculate the amount of tax you need to pay on $100,000 taxable income. Then divide that Tax amount by $100,000 will give you a percentage. The trick is in calculating the taxable income.

    Some relevant information for you to read:
    https://www.ato.gov.au/Business/Starting-and-running-your-small-business/Starting-your-business/Choosing-your-business-structure/Sole-trader/

    https://www.ato.gov.au/Individuals/Income-and-deductions/How-much-income-tax-you-pay/Individual-income-tax-rates/

    https://www.ato.gov.au/Business/Starting-and-running-your-small-business/In-detail/Transcripts/Working-out-your-income-tax-video-transcript/

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