How to Complete Your Tax Return as a Sole Trader (A Step by Step Guide)

As a sole trader, tax returns can cause a few issues such as:

  • Figuring out what can be deducted against taxes
  • Following the right process to submit your return
  • Making sure you've saved the right amount to pay your taxes
  • When is the right time to speak to an accountant

In this article we’ll be covering:

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How to lodge a tax return for a sole trader

You’re an Australian freelancer or sole trader, so your business revenue goes on the same Individual Tax Return you already use every year. It just goes in a different section called the “Supplementary Section”.

There are several ways to lodge a tax return:

  1. Do it yourself, via your MYGOV account
  2. Hire a tax accountant or consultant to do it 

In this guide, we’ll show you how to lodge your tax return via the MYGOV account.

What info do you need before you start?

Before you log in to your MYGOV account, you need a few key business numbers:

  • Your total business income for the year
  • All your tax-deductible business expenses

Hopefully, you’ve got all your invoices and receipts together in one place. If not, gather, organise, and calculate your invoices and business expense receipts.

Note: Learn how Parpera can help you organise your invoices and receipts

How to fill out your tax return with MYGOV

This is not financial advice – we recommend talking to an accountant if you need personalised advice.

  1. Log into your MYGOV account — if you don’t have one, you can create one by heading to their Enrol Services
  2. After you create your MYGOV account, you’ll need to link it to the Australian Tax Office (ATO). Once you’ve linked your account, log back into MYGOV and go to MYTAX. Fill in the first two sections, Contact Details and Financial Institution Details. These two sections are connected to governmental and social services and banking institutions, so you may find them partially prefilled. 
  3. Then go to the third section, Personalise Return. From here, you’ll choose your business structure. Since you’re a sole trader, click the “Business/sole trader, partnership, and trust income (including losses),” box. 
sole trader mytax
Screenshot from ATO's video
  1. When you check the box, a link to a tool will appear. This link will take you to the Personal Services Income tool and will help figure out of the Personal Services Income rules apply to you or not (read more about what PSI is on the Australian Taxation Office (ATO) website)
personal services income tax sole trader
Screenshot from ATO's video
  1. You’ll see that the “Business income or loss” will be automatically checked. 
  2. Once you head to the next screen, myTax will automatically prefill your tax return based on your selection.
  3. You’ll then be asked to fill in your business details, including business activity and business address. Click save to move on to the next section.
  4. Choose your business category and enter your sole trader revenue.
business category sole trader tax
Screenshot from ATO's video
  1. Then you’ll be asked to enter your sole trader expenses in the expenses section (your laptop, phone, and IT expenses will go in the “All other expenses” field). If you have any depreciating assets or capital allowance claims, you can use the Depreciation and Capital Allowance Tool. Read more about this tool here.
business expenses sole trader tax return
Screenshot from ATO's video
  1. Then you’ll be asked to enter your sole trader expenses in the expenses section (your laptop, phone, and IT expenses will go in the “All other expenses” field). If you have any depreciating assets or capital allowance claims, you can use the Depreciation and Capital Allowance Tool. Read more about this tool here.
  2. MyTax will calculate your non-primary production net income or loss.
  3. A page will come up and ask if you want to use the Business Income Offset calculator to see if you’re eligible for the small business tax deduction (as a sole trader, it’s most likely that you are). Read more about the Small Business Income Tax Offset
tax offset sole trader tax return
Screenshot from ATO's video
  1. Once you click save and continue, you’ll be taken through several steps to send out your tax return.

Watch the ATO’s official video walkthrough of how to complete your tax return as a sole trader online:

What happens afterwards?

After lodging your income tax return online, you should receive your notice of assessment in 2 weeks.

If you’ve earned more than $18,200 (the tax-free threshold for the year 2020 - 2021), then you will owe taxes, and the ATO will give you an estimate of how much. Make sure you’ve got enough money set aside to pay income tax – you can use the PAYG instalments calculator to figure out how much you’ll owe every quarter.

The due date to lodge your tax return is the 31st of October.

Once you lodge your first tax return and if it’s above the tax-free threshold, you will automatically enter the Pay-As-You-Go (PAYG) system (or you can request to enter it here). With this system, you will be required to pay tax every 3 months. Learn more about getting started with PAYG.

The ATO will send you an email with instructions on how to pay tax. Usually, you can pay via debit card, credit card or BPAY® and will have 28 days to pay after the end of the quarter.

Note: with Parpera you’ll be able to automatically set aside money for taxes. 

Should you do your own tax return as a sole trader?

It depends on you and how complex your return is. If you hate managing accounts and doing admin, and have several income streams then it might make sense to work with an accountant. If you have big expensive equipment, land, buildings, employees, or investments, an accountant will also help make sure you haven’t missed anything.

If you’ve been tracking your income diligently and have reasonably straightforward accounts, then you might be better off doing it yourself.

Using accounting software specifically for sole traders is a good way of making sure you’re on top of your income and expenses. We’ve put together a breakdown comparing the top accounting software solutions in Australia specifically for sole traders here: Top Sole Trader Accounting Software Options.

Sole trader income is taxed at the same rates as someone with a job. Technically, if your taxable income is below $18,200, you won’t pay any tax. But as a sole trader, you need to declare any money you earn.

Do I need to register for Goods and Services Tax (GST)?

You only need to register for GST when your business makes more than $75,000 in a year. As soon as you’ve passed that threshold, your next invoice needs to include GST (and you need to register for it too). Get more details about GST and how to add it to your invoices here.

Do I need to file a Business Activity Statement (BAS)?

You’ll automatically receive your BAS when you register your Australian Business Number (ABN) or GST. For a small sole trader, a BAS is the quarterly tax form you complete to declare any GST you’ve collected from your clients or paid to merchants for business purchases, and it’ll also help you pay your PAYG instalments.

Learn more about BAS from the ATO website.

How Parpera can help you with your tax return

As a sole trader, completing your tax return shouldn’t take too much time if you’re already organised and prepared. Your tax return is mostly getting all your documents together, sorting them, and adding them all up correctly.

A sole trader accounting app or money management app like Parpera can do most of the heavy lifting for you. You’ll be ready to log into MYTAX and fill in all your details in under 30 minutes.

Here are a few ways Parpera can help you complete your tax return:

Get your business revenue ready in seconds with a separate business bank account

At tax time, it’s important to get your business revenue right. You need accurate numbers, and cash flow correctly calculated and backed up by your client invoices.

If you’ve mixed personal and business expenses, it’ll be a lot harder to figure out what was a business expense and what wasn’t. With a separate business bank account, it’s very easy to track it all.

With Parpera, your membership includes a Volt business bank account, so you always have up-to-date revenue and expense numbers by month, quarter, and year. You can download bank statements anytime and finding last year’s business income only takes a few seconds in-app.

parpera virtual card

Set aside the right amount of tax automatically

One of the trickiest parts of managing taxes as a sole trader is estimating how much you need to save every month for taxes. You don’t want June 30th to come around and realise that you spent the money that you were supposed to save for taxes.

With Parpera, you’ll be able to set up a sub-account called Tax Saver, where you can set aside your money for taxes. At first, you’ll need to manually set aside your taxes, but afterwards it will be automatic based on the percentage tax rate that we think you’ll have to pay.

We’ll soon have a feature where you’ll be able to automatically set aside money for GST as well.

business expense gst parpera

How much income tax should you set aside when you first do it manually? Start with a yearly tax estimate based on your current business revenue. Then, divide it by 12 and set aside that amount every month. Even if things change dramatically later on, you can always adjust it manually.

Create, send and keep tax-compliant invoices in the app

You’re legally required to keep copies of all your invoices. With Parpera’s in-app invoicing, you can easily create, send and store invoices. You’ll never accidentally lose them or worry about storing them ever again. You can:

  • Create tax-compliant invoices in minutes, whether you’re registered for GST or not.
  • Email yourself a copy, download them, or store them indefinitely in-app.
  • Get reminded when client invoices are past-due.
  • Your bank account automatically marks invoices as paid when the money arrives in your account.
  • Create invoices easily on your phone when you’ve got a few seconds free.
  • Client details and your services are saved in a CRM for easy invoice creation.
parpera create invoice
invoice template parpera

Calculate your tax-deductible business expenses fast with automatic flagging

Note: for more in-depth information on tax deductible expenses as a sole trader, read the following article: Sole Trader Tax Deductions (How to Optimise your Taxes in 2022)

Instead of adding up all your expense receipts by hand, you can tag any purchases you make as tax-deductible in seconds with Parpera.

Once you’ve categorised a purchase, Parpera will remember it if you buy it again from the same merchant, saving you valuable time.

tax deductible expense parpera
Flagging as tax deductible is as easy as clicking a button
expense categories parpera
You’ll be able to clearly see where your expenses are going

Not sure which expenses you can deduct? Software subscriptions, work tools, and most anything you use to help customers or run your business are solid deductions.

Graphic designers can deduct their Adobe subscription while tradies could mark their protective work clothing as tax-deductible. Read this short and simple explanation on tax-deductible business expenses.

Store your expense receipts securely with your phone

You won’t be allowed to use a business purchase as a tax-deductible expense if you can’t find the business receipt. With Parpera, you’ll have a record of every purchase you make in your Volt business bank account or with your business debit card.

You can also upload and store every paper or electronic receipt into Parpera right on the transaction. They’ll stay there forever, so you can forget about using paper receipts and storage files.

When it’s time to lodge taxes, your monthly, quarterly, or yearly expenses are ready to go, accurate, and backed up with your receipts. In a few minutes, you’re ready to do your tax return and you’re rock-solid confident in your figures.

Additional benefits of using Parpera to help you with your sole trader tax return

Parpera is designed for sole traders like you who detest admin and need help understanding best practices and legal requirements. Here are a few more ways we can make tax time quick and pain-free:

Be done with tedious tax prep permanently

We know you’re busy and anxious to complete a self-employed tax return quickly, easily and accurately, so you can focus on your business and not admin.  

We hope this guide is helpful and you feel a bit more confident about completing your tax return come the end of June. If you’re looking for a way to keep your sole trader admin organised, easy to manage and track, then you’re welcome to try out Parpera for free for 30 days. Don’t like it? Cancelling is as easy as clicking a button on the settings menu – no questions asked.

Download Parpera

Sources:

  • ATO how to complete a sole trader tax return https://www.youtube.com/watch?v=uV--djFU3Rs
  • ATO sole trader tax deductions https://business.gov.au/finance/taxation/tax-deductions
  • ATO GST https://www.ato.gov.au/Business/GST/Registering-for-GST/
  • ATO BAS https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/
  • ATO invoices https://business.gov.au/finance/payments-and-invoicing/how-to-invoice

Please note the information contained in this article is general information only and does not take into account your personal circumstances. Before you open any account please ensure that you obtain and read the account terms and conditions  and Target Market Determination to see if the account is suitable for you.

*Parpera Australia Pty Ltd (Parpera) ABN 47 641 580 743 is an Authorised Representative (No. 1292372) of Railspay Pty Ltd (Railspay) ABN 17 646 031 558, which holds an Australian Financial Services Licence (AFSL) (No. 530983).

Volt Bank Limited (Volt) ABN 67 622 375 722, which holds an AFSL (No. 504782) is the issuer of the bank accounts in Parpera's App and deposits of up to $250,000 per account holder are protected by the Financial Claims Scheme.

Published on the
May 5, 2022
Business

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