Ways of minimising tax in the past – Part 4 Sole Traders/Entrepreneurs

Part 4 – Sole Traders/Entrepreneurs – how they paid less tax in the past


How they paid less tax in the past

Australia has a lot of taxes & ways of closing loopholes to make sure people pay tax.

This set of articles is to highlight some of the different types of taxes that different types of income earners (Investors, Employees, Businesses, Sole Traders/Entrepreneurs) might now have to pay. so see part 1 regarding minimising tax for investors minimisetaxpart-1-investors ,part 2 regarding employees minimisetaxpart2employees and part 3 regarding businesses minimisetaxpart3business. In particular the Part 3 re: business has more ways that entrepreneurs not acting as sole traders could have minimised tax in the past.

Information is NOT complete – see www.ato.gov.au and/or a professional

Now these articles are in very, very general terms. Each of the laws listed have lots of ins and outs and this is NOT a summary of any set of laws. If you think something has relevance to you -please see a professional (or at least do a lot more reading from the Tax Office website www.ato.gov.au to understand better).

Part 4 – Sole Traders/Entrepreneurs – how they paid less tax in the past

Loss-making business to reduce tax

Then: Had a hobby business that lost money (e.g. farm) to save tax

Now: Non-commercial loss rules – required to pass tests (e.g. $20,000 income, 3/5 years profit, $100k assets in business) to claim losses. From 2010: If your taxable income is over $250,000 – can no longer claim non-commercial losses EVEN if you pass the tests!.

A consultant treating themselves as a business

Then: Consultant asked to be paid into your company or trust

 Now: Personal Services Income –

If you don’t pass the result test (i.e. you are being paid to produce a result rather than being paid for time), then you have to pass other tests.

If you don’t pass – your income is classed as personal services income and taxed in the individuals name (rather than the entity).

Individuals can also either earn personal services income or run a business (as a sole trader). A business can claim more deductions (and there is a Entrepreneurs tax offset) which is not available to personal services income earners.

But aside from those differences – for individuals it can simply be a case of disclosing in the correct place in the tax return.

Posted in Business, Tax

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