As a sole trader you do not lodge a separate business tax return. Your business income and expenses go into your individual tax return, and you pay tax on the profit at your personal tax rates. This guide explains what goes into a sole trader tax return, when it is due and how to avoid the mistakes that cost sole traders money.
How a sole trader tax return works
You lodge your normal individual tax return and complete the business and professional items section (the business schedule). This is where you report your business details, such as your ABN, main business activity and business address, together with your business income and expenses. Your net business profit or loss is then combined with any other income you earned, such as wages or interest.
What you need to report
Business income
- All sales, fees and payments received for your work, including cash
- Income from platforms and apps, such as rideshare, delivery and freelance marketplaces
- Government grants and other assessable business income
Business expenses you may be able to claim
- Materials and stock
- Vehicle expenses for business travel
- Phone, internet and software (business portion)
- Tools and equipment, including depreciation on larger assets
- Insurance, accounting and other professional fees
- Home office running costs, if you work from home
An expense is only deductible to the extent it was incurred in earning your business income, and you need records to prove it. Private use must be excluded.
Rules that catch sole traders out
Personal services income (PSI)
If most of your income is a reward for your personal skills or effort, for example as a contractor working mainly for one client, the PSI rules may apply. If they do, some deductions are restricted. The tax return asks a series of questions, such as whether you meet the results test or receive 80% or more of your PSI from one source, to work out whether the rules apply to you.
Business losses
A loss from your business cannot always be used to reduce your other income, such as your salary. The non-commercial loss rules may require the loss to be deferred until the business makes a profit. Get advice before you claim a business loss against other income.
GST and BAS
You must register for GST once your business turnover reaches $75,000 a year. Rideshare and taxi drivers must register for GST regardless of turnover. Once registered, you lodge business activity statements and report GST separately from your income tax. Our BAS preparation and lodgement service keeps this on track.
When is a sole trader tax return due?
If you lodge yourself, your tax return is generally due by 31 October after the end of the financial year. If you are on a registered tax agent’s client list before that date, you may have a later due date under the tax agent lodgment program. Lodging late without an agent can lead to penalties, so engage a tax agent early if you need more time.
Records to keep
- Invoices and sales records
- Receipts for expenses
- Bank statements for your business account
- A logbook if you claim car expenses using the logbook method
- Records of how you worked out business-use percentages
Keep your records for five years from the date you lodge your return. Good bookkeeping throughout the year makes tax time faster and cheaper.
Frequently asked questions
Do sole traders lodge a separate business tax return?
No. Sole traders report business income and expenses in their individual tax return, using the business and professional items section.
Do I pay tax on my business turnover or my profit?
You pay tax on your taxable profit, which is your business income less allowable deductions, added to any other income you earned during the year.
Can I use myTax as a sole trader?
Yes, myTax includes a section for sole trader and business income. However, PSI, losses, depreciation and GST make sole trader returns more complex than a wage earner’s return, so many sole traders use a registered tax agent.
Get your sole trader tax return done properly
Kennedy Tax & Business Services prepares sole trader tax returns for tradies, contractors, drivers and small business owners across Melbourne’s west. See our income tax return preparation service or contact our Footscray or Williams Landing office to book an appointment.
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This article is general information only and does not take into account your personal circumstances. Speak to a registered tax agent before acting on it.
