5 tax tips for freelance Australian consultants

Key points at a glance

• If you’re a business consultant stepping out on your own, you must familiarise yourself with your tax obligations. This includes knowing about your requirements in relation to having an Australian Business Number (ABN), being registered for Goods and Services Tax (GST), lodging your Business Activity Statement (BAS) and your Pay As You Go (PAYG) obligations.
• You may be able to claim a range of expenses as tax deductions to reduce your tax bill at the end of the financial year, including vehicle costs, home office overheads, and professional industry memberships.
• Remember: time is money! So make use of digital tools that streamline the tax filing and record keeping processes.

Operating as a freelance consultant

For many in the knowledge industry, there comes a moment when the entrepreneurial call is too loud to resist. Having built up many years of experience in professional services, the time comes to do it alone – branching out into the wide world of independent consulting.

As a mover-and-shaker, you can use your hard-earned expertise to offer insight into abstract concepts such as communications, strategy, management and marketing. This high-level thinking doesn’t necessarily always translate into the day-to-day running of your own business operations.

To help, we’ve created a list of five tips for consultants entering the freelancing fray.

1. ABN, GST, BAS, and PAYG: Familiarise yourself with the small business tax alphabet

After determining whether you’re an employee or a contractor, if you’re looking to get stuck into sole trading, you should first look to register for an Australian Business Number (ABN) - if you don’t already have one. If you’re earning more than $75,000 annually, you’ll also need to register for and pay the Goods and Services Tax (GST) by lodging regular Business Activity Statements (BAS).

Even if it looks like this threshold won’t be reached in the early years, it might still be worthwhile registering for GST to claim back GST credits on a range of business expenses.

2. Deduct business expenses

Downgrading from a corporate corner office to the living room table or home study might seem like a step back on the career ladder, but this scenery change comes with several advantages. Many of the costs that come with running a business from home can often be claimed back in your annual income tax return, including office equipment, utilities bills and mortgage interest (prorated).

If working from home is untenable, you may like to look into working from a shared co-working space. Even if it’s just for a few days each week, moving work out of home and into a shared space can provide networking opportunities which can be valuable for your business. Plus, associated costs may be able to be deducted for tax purposes.

Other costs such as phone, internet and vehicle leases may also be eligible. However, it’s important to note that all deductions must be correctly apportioned between business and private use.

3. Claim back travel costs and claims

Alongside vehicle leases, if you’re required to travel significant distances to visit clients, it’s likely these costs could be claimable. For travel by vehicle where the travel is between jobs (not home-to-work or work-to-home travel) there are two methods of claiming car expenses available:

Cents per kilometer method - provided the total distance travelled is shorter than 5,000 kilometres per year, up to 78 cents per kilometre for 2022-23.

Log book method - For greater distances, a detailed travel log will be required. Taken over a minimum of 12 weeks, these entries must include information such as kilometres travelled, business use percentages, and odometer readings. A more detailed explanation for these two methods can be found in our article on tax tips for rideshare drivers.

4. Deduct networking and upskilling opportunities

A core part of building a new business is growing a network and carving a niche. To that end, it may be possible for you to claim back the annual costs of membership to professional industry associations such as the Public Relations Institute of Australia, or the Institute of Management Consultants, depending on the industry you are working in.

Similarly, expenses paid in relation to you undertaking additional training in your current field may be deductible for income tax purposes.

Known as self-education expenses, these deductions enable you to improve your skills and knowledge for your current income-generating activities and claim a deduction for these expenses. However, please note that there must be a direct connection between the content of the training your current work activities.

5. What can’t you claim?

While a wide range of costs can be claimed back during tax season, there are some items that the ATO is unlikely to allow a deduction for.

Examples include clothing such as suits or dresses, entertainment expenses such as business lunches or sporting events, and education or training that is unrelated (or only loosely related) to your current field of work.

Keep good records, but don’t waste time filling out forms.

Most importantly, as a newly independent consultant, you must keep clear and accurate records. This will save considerable time and stress during tax season, ensuring the filing process is as smooth as possible.

When you’re working with a billable hours cost structure, unnecessary time spent figuring out your taxes and record keeping at year end turns into billable hours you’re missing out on. You wouldn’t advise clients on wasting precious time and resources tending to manual processes, so why should you do it with your own business? Ensure you are set up properly for tax from day one to save time and money.

To get yourself set up from a tax point of view, take a look at Airtax - to register an ABN, maintain your BASs and to file your GST and income tax return. Sign up to Airtax here.