Australian Taxation Law for Sole Trader -myassignmenthelp.com

Question: Discuss about theAustralian Taxation Law for Sole Trader. Answer: Introduction A sole trader operates all the business by him or herself, there is no difference between the business and the trader. The owner of the business has a total control over the business and owns all the business assets and most importantly the owner of the business is responsible for all the business expenses and liabilities. In order to do business as a sole trader, the owner must understand that he is the business and personally liable for the business liabilities. Considering the legal perspective the business is not a separate legal entity from the owner but the owner and the business is one entity. As sole trader one should be aware of the tax as well as other legal requirements, the content of this paper offers tax advice to a client operating a business in Australia. Generally a sole trader pays tax at the individual marginal rate which means the tax rate is above the 30% paid by companies but on the other hand enjoys tax reliefs as well as other benefits discussed in the content of the paper. Tax implication for a sole trader Before starting any business entity, an entrepreneur should consider various legal requirements which in this case includes is taxation rate for a sole trader. There are various tax related implication which a sole proprietor should have knowledge and consider before starting the normal business operations.[1] As sole trader, one should always report to the Australian tax authorities concerning the net income generated in addition to other income and taxed at a personal marginal tax rate. Among other things, a sole proprietor should have consideration for personal asset protection as well as capital gain tax.[2] Another tax implication that should be considered by a sole trader is distribution of the capital as well as the income. Finally, a sole trader should be aware of the cost of setting up the business as well as the running or maintenance cost as this will help with the calculation of the profits as tax. As a sole proprietor there is no difference between the business and the owner of the business, a sole trader therefore pays the same tax as individual player. As sole trader in Australia, one will pay taxes at the normal income tax rates. A sole trader should therefore be aware of the normal tax income rates. If the business is below the tax free threshold level a sole trader will not pay tax just a normal individual.[3] The tax free threshold currently at $ 18,200 for both sole traders and individuals, in case the business worth and the overall income of the trader is below the threshold, the business and the owner will not pay taxes. And this is always an advantage to a sole proprietor since companies as well as other entities pat taxes for every dollar the entity makes. A sole trader business is taxed at the normal individual rate making sole traders to enjoy the tax free threshold in situations where the sole business is below the threshold rate. In relation to what a sole proprietor should pay as tax at the end of every month of financial year, an entrepreneur operating as a sole trader should be aware of the taxation rates paid by individuals in Australia. A sole trader should therefore use the income tax rates set for individual income earners within the nation as follows: $1 $18,200 - Nil $18,201 $37,000 - 19c for each $1 over $18,200 $37,001 $80,000 - $3,572 plus 32.5c for each $1 over $37,000 $80,001 $180,000 - $17,547 plus 37c for each $1 over $80,000 $180,001 and over - $54,547 plus 45c for each $1 over $180,000 As already discussed above, when a sole proprietor earns the amount above $ 1 but below the threshold mark of $18,200 the business will in this case make nil returns but in the case where the business and the sole trader makes cash above $18,200 but below $ 37,000, the sole trader will have to pay 19c for every dollar made.[4] A sole trader will file returns of $3500 and additional 32.5c for every dollar below $80,000. In any case the business makes lager amount according then $80,000, the sole trader will have to file $17547 and additional 37c for every dollar made below $180, 000 and finally a sole trader will pay $54,547 plus 45c for every dollar made above $180,000. A sole trader should therefore understand the calculator and pay tax as required by ATO. It is advisable for a sole proprietor to take notice of the some of the obligation set by ATO. As an entrepreneur operating as a sole proprietor the business owner should use his or her individual tax file number when logging to the tax returns since the business and the owner is a single entity. The business owner as mentioned prior should report all the income generated within the tax returns. In relation to the income tax reports, a sole proprietor should be aware that there is no separate tax returns for a sole trader and should use the section for business items to indicate the business income and overall expenses incurred during the trading period.[5] A sole trader should also be aware of ABN, apply for the ABN and utilize it for all the business dealings. Moreover, it is a requirement by ATO for sole traders to register for Goods and Service Tax also known as the GST incase the business turnover is $75,000 and above. [6] As sole proprietor, it is advisable for a sole trader to pay tax at a similar income tax rates as an individual taxpayer. Payment of taxes at the same rate by a sole proprietor will therefore enable a sole proprietor to be eligible to small business tax offsets. Tax offsets are suitable for any business unit since it boots the profit generated by an entity. An individual sole proprietor should also put aside money to settle the end of every financial or trading year. This is usually done by paying Quarterly Pay As You Go (PAYG) installments. According to the ATO, a sole proprietor can claim deduction for any personal contributions he or she makes after notifying the funds to ATO. On the other hand a sole trader should understand that, he or she cannot make deduction claims for any dollar drawn from the business. According to Australian Tax Office any amount drawn from the business are not considered as wages for the purposes of tax as some of the sole traders always taken them or thi n about them as wages. Claims laid on such drawings are therefore invalid and cannot be settled.[7] Conclusion Venturing as a sole proprietor is advisable as sole proprietors pay taxes individual as other citizens in Australia. A sole trader pay tax as individual with the normal rate set by Australian Tax Office. Venturing as sole trader is suitable as the owner of the business do not need to pay tax for every dollar made in the business. The business owner may also enjoy the tax threshold rate, in the case where the business makes money below the threshold rate set by the ATO ($18,200). Finally, the business owner can also enjoy benefits for small business if the returns are persistently paid. References Woellner, R. H., CCH Australia Limited. (2011). Australian taxation law 2011. North Ryde, N.S.W: CCH Australia. Woellner, R. O. B. I. N. H. E. T. A. L. (2017). AUSTRALIAN TAXATION LAW 2017. S.l.: OXFORD UNIVERSITY PRESS. Woellner, R. H., CCH Australia Limited. (2013). Australian taxation law 2012. North Ryde [N.S.W.: CCH Australia. Woellner, R. H., CCH Australia Limited. (2013). Australian taxation law 2012. North Ryde [N.S.W.: CCH Australia. Woellner, R. H. (2012). Australian taxation law 2012. North Ryde [N.S.W.: CCH Australia. Nethercott, L., Richardson, G. A., Devos, K., CCH Australia Limited. (2010). Australian taxation study manual: Questions and suggested solutions. North Ryde, N.S.W: CCH Australia. Woellner, R. H. (2010). Australian taxation law 2010. North Ryde, N.S.W: CCH Australia. Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., Pinto, D., CCH Australia Limited. (2014). Australian taxation law 2014. Krever, R. E. (2014). Australian taxation law cases 2014: A guide to the leading cases for commerce and law students.