Tax differences between a sole trader and a company

Question Sole trader Company

What is the tax-free threshold?

  • $18,200 for sole traders (individuals) in the 2016-17 income year.
  • It changes from time to time so check the individual income rates.
  • There is no tax-free threshold for companies in the 2016-17 income year.

What are the tax rates for income?

  • The company tax rate is currently 30%. From 1 July 2016, the company tax rate for small businesses with an aggregate turnover of less than $10 million is 27.5%.
  • No tax-free threshold for small business and companies.

What small business concessions are available?

What type of tax returns need to be lodged?

  • Individual tax return  needs to be lodged each year.
  • Business income and expenses go in your individual tax return using a separate business schedule – you do not need to lodge a separate return for your business.
  • Separate company tax return needs to be lodged.
  • You must also lodge your own personal return as an individual for income you earn via wages, shares, dividends or loans received from the company or any other sources of income.
  • If you are a director of a company or trust, benefits you receive may be subject to FBT. You must lodge an FBT return if you have a liability during an FBT year (1 April to 31 March).
  • Must also lodge return of any associated company trusts.

What business taxes and superannuation will I need to pay and report?

Business taxes and superannuation are not based on your business structure, but the activities of the business.

You may need to register for taxes such as:

If you have employees you will also need to:

Consider if you need to pay fringe benefits tax (FBT) instalments. This is only required if employees receive a fringe benefit.  Check out the Australian Taxation Office’s (ATO) website for more on the types of payments that incur FBT.

When do I have to pay Goods and Services Tax(GST)?

  • For both a company and a sole trader, you must register for GST if your turnover is $75,000 or more.
  • If it is below this amount it is optional to register.

When do I have to pay payroll tax?

  • Payroll tax is regulated by the state governments and therefore each state is different.

More information...

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