How is tax calculated?
A sole trader business structure is taxed as part of your own personal income - you are required to pay income tax at individual tax rates.
The following rates for 2018-19 apply from 1 July 2018:
|Tax income||Tax on this income|
|0 - $18,200||Nil|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $90,000||$3,572 plus 32.5c for each $1 over $37,000|
|$90,001 – $180,000||$20,797 plus 37c for each $1 over $90,000|
|$180,001 and over||$54,097 plus 45c for each $1 over $180,000|
Note: The above rates do not include the Medicare levy of 2%.
After claiming a deduction for all allowable expenses, you declare all your business income (along with any other income you may receive) using a separate business schedule in your individual tax return. After your first year in business, you generally will pay quarterly Pay As You Go (PAYG) instalments that go toward the amount of tax you will have to pay at the end of the year.
A company business structure is taxed as a separate legal entity that does its own tax return.
There is no tax-free threshold for a company business structure. The company tax rate is currently 30%. The 27.5% lower company tax rate applies to companies that meet the conditions of a base rate entity.
Companies have to lodge an annual company tax return which shows:
- the company's income
- the income tax it is liable to pay.
Companies must lodge their own tax return, and if there is an associated trust, the trust must lodge its own tax return too.
As a director, if you draw wages as an employee or receive dividends from the company, you must report this as income when you lodge your own individual return. You may also need to lodge a fringe benefits tax return, if you receive fringe benefits.
Find out more
- Watch the Australian Taxation Office (ATO) video Working out your income tax to find out the difference in calculating tax for a sole trader and a company.
- Check out Australian Securities and Investments Commission's Guide for Small Business Directors for more about your legal obligations as a company director.
- Check out the ATO website to learn more about the changes to company tax rates and what it means to be a base rate entity.