Self-employed and Company Tax

Information about tax laws for the self-employed in Australia...


The business structure you choose when establishing a business in Australia is vital in ensuring that you pay no more tax than is necessary (most family businesses operate a family trust in order to reduce taxes). The self-employed include sole traders and those in a partnership, but not a limited company or trust. If you have a limited company, you must pay corporate or company tax on your profits and will need the services of an accountant.

It's important to obtain expert legal advice before establishing a business or starting work as a self-employed person in Australia. Like everything to do with tax law, the regulations applying to the self-employed are complicated and time-consuming, and are estimated to cost some $7bn a year in lost time. Not surprisingly, some 90 percent of the self-employed use a tax agent to complete their tax return.

From a tax point of view, you're generally better off being self-employed than employed, as you're eligible to claim more allowances in the form of business expenses, including telephone bills, travel to and from work, and work clothes or uniforms.

Another advantage for the self-employed is the delay between making profits (if they manage to do so) and paying tax on them, as the self-employed usually pay their tax in arrears.

Recent court cases have declared that, under the current tax laws, airline pilots, bicycle/motorcycle couriers and taxi drivers are independent contractors, and are therefore entitled to be treated as self-employed. In the light of these decisions, the ATO sidelined proposals that would have re-classified thousands of self-employed contractors as employees subject to PAYG tax. Nevertheless, tens of thousands of 'employees' pose as self-employed in order to claim extra allowances.

Company Tax

For taxation purposes, companies include all bodies or associations (corporate and noncorporate), but not partnerships, where partners are taxed individually. In the 2010-11 financial year, companies were liable to pay tax on profits at a flat rate of 30 percent. Employers are also liable for fringe benefit tax on non-cash benefits made available to employees (such as company cars and low-interest loans). A company has its own tax file number and may also need a GST registration number. The date for filing depends on the company's financial year; tax is usually paid in instalments in the year following the year of the tax liability, e.g. tax owed for 2012 is paid in 2013.

Extract from Living and Working in Australia (8th Edition - 2013) David Hampshire Published by Survival Books Ltd, Survival Books, P.O. Box 3780,Yeovil, Somerset, BA21 5WX, United Kingdom. Tel/Fax: (+44) 01935-700060 Copyright © Survival Books Ltd All Rights Reserved