Important facts about self-employment taxes

Do you work for yourself or are you thinking about becoming self-employed? Taxes are an important part of running a small business so make sure you are informed about your obligations and responsibilities.

self employed woman

Income tax payments

PAYG instalments is a system for individuals and companies to pay instalments towards their income tax. In your first year of business, you generally don’t pay PAYG instalments. After you lodge your first tax return showing a profit from business or investment income, the Australian Tax Office (ATO) will send you a letter outlining whether you must pay PAYG instalments. As such, you will need to budget for the total amount of income tax you are liable to pay. One way to budget to pay your tax is to estimate the total amount of tax you will required to pay and make voluntary payments to the ATO throughout the year.

Goods and services tax (GST)

In Australia, goods and services tax (GST) is charged on the supply of most goods, services and other things, for example, supplies of rights or the sale of certain property. The GST rate is set at 10 per cent and is payable if you make a taxable supply. The value of a taxable supply is the GST-exclusive consideration payable for the supply. For example, if the value of the supply is $70 the GST payable is 10% x $70 = $7.

Claim business related expenses

The self-employed will be eligible to claim more allowances for legitimate business expenses than standard employees. The types of expenses that can be claimed include travel to and from work, telephone bills, stationery, and work clothing or uniforms. Your accountant will be able to advise you on the types of expenses you are able to claim for your type of business.

Paid Parental Leave scheme

If you are self-employed you are still eligible for the Paid Parental Leave scheme. You must be on leave or not working from the time you become your child’s primary carer until the end of the Paid Parental Leave cycle. If you return to work before your Paid Parental Leave period ends, the payment will stop from that day. However, self-employed people can still keep an eye on their business without it being regarded as having returned to work, meaning you can oversee business operations and perform the occasional administrative task, such as paying an account or hiring replacement staff to manage your absence from work. For further information, view the Family Assist Employer’s Toolkit.

Tax period

Your tax period determines when you must submit your activity statement and pay GST. A tax period is usually a period of three months (that is quarterly) ending on 31 March, 30 June, 30 September or 31 December, or a calendar month (monthly). However, you may be able to make your tax period annual, if you qualify and elect this option. If you have annual tax periods, you are only required to lodge an activity statement, and pay any GST payable, once a year.

More about tax and finance

5 Tax deductions for families
10 Great ways to spend your tax return
Working mums to pocket $10,000 with Paid Parental Leave

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