Do I need an ABN?
Individuals who are working as contractors or sole traders who are operating a business need to have an ABN. You can find out more about when you need to have an ABN here.
How does an ABN change my tax obligations?
Income tax:
If you are operating a business under a sole trader ABN, no one is withholding tax on your earnings from these activities. This means that you need to account for and put aside some money for your annual income tax obligations, which will be payable at the end of each financial year or via PAYG instalments throughout the year on a quarterly basis.
GST:
If you are registered for GST, you also need to remember to charge GST on sales and put this aside for GST payable to the ATO at the end of each reporting period, which is generally monthly or quarterly.
Superannuation:
If you are a contractor, you generally are not required to pay yourself superannuation. However, if you do, you might be able to claim a tax deduction for the amounts paid. If this is the case, you can find out more about this here. Also, if you are a contractor employed mainly for your labour, the employer might also have an obligation to pay superannuation guarantee on your income. If this is the case, you can find out more about this here.
What percentage of earning should I be putting aside for tax purposes?
While everyone's tax payable will be different, one way you can get a sense for how much tax you might owe at the end of the year is to check the ATO individual tax estimate calculator here.
What sort of things can I declare as deductions on my tax return when working as an independent care worker?
If you are employed in the nursing industry, you might be entitled to claim a tax deduction for certain work-related expenses, such as:
- Car expenses.
- Uniform, occupation specific or protective clothing, laundry and dry-cleaning.
- Self-education expenses.
- Agency commissions and fees.
- Other expenses – such as phone, tools and equipment and overtime meals (in some cases but not all).
Read a more detailed list of deductions or check out the 10 common tax deductions for care workers.
Do I need receipts for everything I claim as a deduction on tax return?
During the financial year you'll receive documents that are important for your tax including payment summaries, receipts, invoices and contracts. Generally, you need to keep these for five years from when you lodge your tax return. This is necessary in case the ATO asks you to substantiate your claims. Read more about record keeping requirements.
What can be claimed for car usage?
Car expenses
Care workers may be able to be claim car expenses for work related travel using the cents per km method or the logbook method. Travelling between home and work, and travelling to social functions cannot be claimed. Read more detail on the two methods for claiming vehicle expenses.
Car provided by employer
A deduction cannot be claimed for car expenses where an employer or other person provides a car and the individual does not pay for any of the running costs.
Is there a specific template we can use to record car usage?
If you use the logbook method you can claim the business-use percentage of your car expenses, based on the logbook records of your car’s business versus private usage. Read the ATO's guide for using the logbook method.
Do I have to pay tax quarterly?
As a sole trader who is earning income which no one is withholding tax on, you might be required to make prepayments of income tax on a quarterly basis under the PAYG instalments system. The ATO will work out if you need to pay PAYG instalments based on your last lodged tax return. This generally happens if you had gross business income of $4,000 or more and tax payable of $1,000 or more.
If you know that you will be earning business income on which you need to pay tax at the end of the year and the ATO has not yet automatically entered you into the PAYG instalments system, you can voluntarily elect to pay PAYG instalments. This can be helpful if you are concerned about cash flow management throughout the year.
What is the difference in submitting a tax return as a sole trader vs. submitting a tax return when you are an employee?
As an individual who is an employee, you:
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Pay income tax on your salary and wages, most Centrelink payments, investment income from rent, bank interest or dividends you receive, profits from selling shares or property and income from your business.
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The amount of income tax and the tax rate you pay depends on your circumstances and how much you earn. The more you earn, the higher your rate of tax.
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If you're an Australian resident, the first $18,200 you earn is tax free, although in some circumstances this is reduced. You can claim the tax-free threshold when you complete your TFN declaration which you need to provide to an employer when starting a new job.
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If you earn additional income (for example, from a second job or a taxable pension) your second payer is required to withhold tax at the higher, 'no tax-free threshold' rate. Otherwise you might have a tax debt at the end of the financial year. You would need to notify the payer of this via your TFN declaration.
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You may also need to pay a Medicare levy, generally 2.0% of your taxable income.
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If you have an accumulated Higher Education Loan Program (HELP) debt or an accumulated Financial Supplement debt, you need to include this information on your TFN declaration. Depending on how much you earn, you may have to make repayments on this debt as part of your income tax payment.
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You need to lodge a tax return each year. You may be eligible to claim tax deductions for expenses you directly incur in earning your income. However, you cannot claim the cost of normal domestic or private expenses.
As a sole trader, you:
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Still lodge a tax return in your name under your individual tax file number (TFN)
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Need to report all your income in your individual tax return including non-business income such as salary and wages, interest and dividend income. You would then use the Sole Trader Business Schedule to report your business income and expenses under your ABN (there is no separate business tax return for sole traders)
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Pay tax at the same income tax rates as individual taxpayers and but may be eligible for the small business tax offset
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Put aside money to pay your income tax at the end of the financial year as no one is withholding tax from this income on your behalf - you might do this by paying quarterly PAYG instalments as explained above. If you do pay PAYG instalments throughout the year these amounts are considered an offset to reduce the tax you pay at the end of the year when you lodge your tax return
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Might be able to claim a deduction for personal super contributions you make after notifying your fund.
What kind of records do I need to keep?
Records you need to keep include:
- Payment summaries from payers, including your employer and the Department of Human Services
- Statements from your bank and other financial institution showing the interest you've earned
- Dividend statements from companies
- Summaries from managed investment funds
- Receipts or invoices for equipment or asset purchases and sales
- Receipts or invoices for expense claims and repairs
- Contracts
- Tenant and rental records if you are a landlord renting out a property.
If your total claim for work-related expenses is more than $300, you must have written evidence to prove your claims.
Read more about your record keeping requirements.