Suitable for: Anyone who operates as a sole trader
Tax Difficulty: Moderate
Time to read: 4-6 minutes
Tax Focus: Income Tax Returns
With over 50% of business in Australia consisting of sole traders with no employees, it is clear that this income source is extremely common amongst individuals. From nurses to rideshare drivers, freelance designers and tradies, there’s a huge variety of business activities that constitute sole trading, all of which need to be reported in the income tax return. In this Help Centre article, we’ll introduce the sole trader section of the Airtax tax return, and breakdown exactly how it can be used to save time and stress reporting your business' yearly income and expense activity.
What exactly is sole trading?
Sole trading is a type of small business in Australia where an individual sets up a business in their name, and they are the only owner. This is a different business structure to a company for example, which has a separate legal identity to its owner. The owner of a sole trader business is typically also the operator, and they will have a sole-trader ABN that is listed in their name. Below are a few examples of some common sole trading activities:
- Nursing - through a platform like Mable, Hireup, Find a Carer
- Rideshare driving - e.g. Uber, Ola, Didi,
- Food delivery - e.g Deliveroo, UberEats, Menulog
- IT consultation service,
- Freelance designing and photography,
- Trades such as plumbing and carpentry
What does it mean for my income tax return?
Your businesses overall position for the financial year is worked out as the gross income less any expenses incurred as part of the business. This overall business position is income to you as a sole trading business owner and is added to your individual assessable income - which determines your overall tax rate.
If your business runs at a loss for the financial year, the loss may be used to offset any other income earned in the same year, or carried forward and claimed as a deduction in the next year - however this depends on your specific circumstances. You will notice our live calculator will switch off in this situation.
If you would like to discuss how any business loss will be treated on your tax return, you can speak with one of our tax accountants through our Tax Assist service. Otherwise, when you submit your tax return for review, we will send you an updated version of your tax return for you to provide your updated consent.
I already lodge BAS through Airtax, do I need to enter this information again in my tax return?
No! Any income and expense information you’ve already submitted in BAS through Airtax will be prepopulated to the sole trader section of your tax return in the appropriate fields, so you don’t have to enter all this information again.
Note: only information contained in BAS that you submitted through Airtax is available to be prefilled via this feature. If you lodged some BAS for the financial year through another means, you will need to adjust the prefilled amounts in this section to include the information in these other BAS.
Where is the sole trader section on the Airtax tax return?
The sole trader section is found on the Income page of the Airtax Tax Return. Follow the prompts to attach a sole trader business, and you will be taken to a new page to enter your business information.
What amounts do I need to input in this sole trader section?
This depends on whether or not your ABN is GST-registered and you have been reporting BAS:
- If you are GST-registered: you need to list GST-exclusive income and expense amounts. This will be done for you if you have lodged your BAS through Airtax.
- The formula to compute a GST-exclusive amount is:
GST-exclusive = GST-inc. price / 1.1
- If you aren’t GST-registered: you need to record GST-inclusive amounts for your expenses.
How do I complete the sole trader section?
The sole trader section consists of a logical series of questions about your business, however, there are a few important things to keep in mind to avoid getting stuck:
- Main business activity: this represents the business activity from which you derive most of your income. If you only operate one activity under this sole trader ABN, just write what this activity is here. For example, if you operate mainly as a freelance photographer, however also use this ABN for the purposes of some infrequent rideshare driving, you should list “freelance photography” as the main business activity.
- Number of business activities: if you used this ABN to run or operate multiple activities, list the number of activities here. If you only operate one business (e.g. IT consulting), then list “1” in this field.
- Status of business: if you are no longer operating the business at the time you are completing the tax return, list “ceased” here.
- Gross income from your business: this is where you will need to total up the amount of revenue you earned through this ABN. If you had more than one business operating under this ABN, combine the income earned and list it here. Remember, if you are GST-registered: you need to list GST-exclusive income.
- Car vehicle expenses: this is where you can claim expenses relating to the running of any vehicles you use for your sole trading activity. You can choose between the “rate per km” method, which allows you to claim a fixed number of cents per km travelled for a business purpose (up to 5,000km), or alternatively, you can use the logbook method to claim a business use percentage of each separate expense that relates to the running of your car.
- Cents per km method:
- Logbook method, applying a 75% business use percentage to various car expenses (determined through a logbook):
- The business summary:
The business summary located at the bottom of the sole trader section displays your total business income and deductions, based on the amounts you enter, and works out your business’ position for the financial year. If positive, this business position is added to your taxable income. If negative, this indicates a business loss.
If your business runs at a loss for the financial year, the loss may be used to offset any other income earned in the same year, or carried forward and claimed as a deduction in the next year - however, this depends on your specific circumstances. If you would like to discuss how any business loss will be treated on your tax return, you can speak with one of our tax accountants through our Tax Assist service. Otherwise, when you submit your tax return for review, we will send you an updated version of your tax return for you to provide your updated consent.
Once you have completed this sole trader section, you will be returned to the Airtax Income page and will see your business summary displayed. To re-access the sole trader section, click anywhere on this new link.
How can Airtax and PwC support you as a sole trader?
We know that sole trading can introduce some additional complexity to your tax return. Many people tell us that they want to use an accountant to do their personal tax return, but don’t realise that through Airtax they have access to lots of accountants. We want to make sure you have the choice on how you complete your return. You have the option of completing yourself, or purchasing one of our phone support calls where you can speak to one of our PwC accountants about your tax return.
- Tax Assist: if you have particular questions about the sole trader section of your return, this 30 minute phone call might suit you. $179 includes a 30 minute phone call and one free income tax return lodgement.
- Tax Professional: our most comprehensive income tax return support service. If you need a detailed walkthrough of an entire tax return with a dedicated accountant, from start to finish, Tax Professional is perfect for you. $349 gets you maximal support, including a follow-up phone call where necessary, and includes a free income tax return.
Feedback from our users suggests that Airtax phone support is a great way to get peace of mind knowing that you’re lodging correctly as a sole trader, and can help you find any deductions you may not have known you could claim.
What you’ve learned:
- The income tax implications associated with sole trading
- Where to account for your business income and expenses on the Airtax tax return
- The Airtax BAS to Income Tax Return migration, and how it can reduce the time it takes for you to complete your lodgement
- Some important things to keep in mind when you’re working on the sole trader section, to avoid getting stuck.
- How you can get more detailed guidance with your tax return.