FAQs - Taxable Income
In Australia, businesses with an annual turnover of $75,000 or more are required to register for GST. You are not required to register if your business has a lower turnover, but you may do so if you wish. GST must only be charged to your customers if you are registered. With Tailored Accounting Solutions, you can register for GST
As long as you meet the eligibility criteria, you can claim a deduction for contributions you made to a complying superannuation fund or retirement savings account.
You must be fully self-employed or receive less than 10% of your assessable income from an employer (including Reportable Fringe Benefits and Reportable Superannuation Contributions). You must also have first notified your superannuation fund of your intention to make the claim and received a confirmation
Certain eligible pre-paid expenses can be claimed if your turnover is less than $50 million.
Rent, insurance, and professional association subscriptions are examples of prepaid expenses that can be claimed in the year they are paid.
Payments made for periods of 12 months or less that end in the next income year will be eligible expenses. Your pre-paid rent qualifies because it covers a period of less than 12 months and ends before the end of the next income year. This year, you can claim the entire amount on your tax return.
Inheritances are not taxable unless the executor advises you otherwise. In contrast, if you invest the estate income, you will have to pay taxes on any earnings.
In most cases, the income will be taxable unless you have worked overseas continuously for more than 90 days on a specific Australian government project or deployed overseas as a member of an Australian government agency. The income will be tax-exempt in these cases.
Unless your overseas income is exempt, you will need to declare it on your Australian tax return and may be entitled to a foreign income tax offset.
Seminar expenses are tax deductible if they relate to your current income-producing activities.
Your concessional contribution to your super fund is limited. Limits on superannuation contributions limit the tax benefits available each year.
Over-concessional contributions result in additional taxes payable, and non-concessional contributions are counted towards the non-concessional cap.
Employer contributions and self-employment contributions are considered concessional contributions, which are tax deductible. The current concessional contributions cap, regardless of age is $27,500 per annum. Most people over 67 must pass a work test to contribute to super. To make tax deductible and non-deductible contributions to super, you must work for at least 40 hours during 30 consecutive days.
Contributions made after tax are non-concessional. Once contributions are made to a super fund, earnings are subject to the normal fund tax rates.
Concessional contributions are those paid by your employer to meet Superannuation Guarantee obligations and those paid under a salary sacrifice arrangement.
Your employer will redirect a portion of your pre-tax pay into your super fund when you salary sacrifice into super. These contributions are taxed at a rate of 15% in the super fund. For most, this is a lower rate of tax than their marginal tax rate.
Concessional contributions are capped at $27,500 per individual per year. You may have to pay extra taxes if your employer contributions and salary sacrifice contributions exceed this limit.
Before arranging salary sacrifice into super, check your employment agreement or speak with your employer.
Franked Income: Understanding and Calculating Franking Credits
Yes – a sole trader still needs to lodge an individual tax return each year. Any taxes owing on income is paid using the Pay-as-you-go (PAYG) system of quarterly payments.
Franked income is important to know if you own shares or plan to invest in the stock market. There's a phrase you've probably heard at some point, and it might seem confusing at first, but it's really quite simple.
Here are the main points you need to know:
A dividend is a piece of a company's profit that shareholders receive as dividends. A company can pass on franking credits when income tax has already been paid on this dividend. This system is called ‘imputation’. You are then able to use these franking credits as tax offsets.
The purpose of this system is to prevent double taxation on dividends. Double taxation is what happens when you get taxed twice on the same income (ie once by the company and then again by you, in your tax return). It also allows companies to receive tax-free distribution for certain income, again to avoid double taxation.
Australian residents will receive dividends via the imputation system. In the case of a non-resident, you will be taxed differently based on your situation, so you should consult an experienced tax advisor.
In addition, how much tax you owe on a dividend depends on your marginal tax rate (the tax you pay on any additional income) and the tax rate for the company issuing the dividend.
Depending on the situation, shares can be fully franked, partly franked, or unfranked. When a dividend is fully franked, the company pays 100% of the tax on the dividend, so you can take this as a tax deduction. Partly franked dividends have only had part of the tax paid, and unfranked dividends have not had any tax paid on them, so you will need to cover this in your tax return. If, once your tax return has been completed and Medicare levy liabilities have been met, you have any excess imputation credits, these will be refunded to you by the ATO.
Here is a simple example to demonstrate:
Sam is a shareholder of a large corporate company and receives a fully franked dividend of $100 from an Australian resident company that has a corporate tax rate of 30%.
Sam's franking credit would be: $100 / (1 - 0.30) - $100 = $42.86
The franking credit ($42.86) plus the original $100, means the total dividend would be $142.86.
If the dividend was partly franked at only 50% franked, then Sam's franking credit payout would be $21.43.
It is important to make sure you get the right information when making any choices and when completing your tax return, because franking can significantly affect the amount of tax you pay.
The team at TAS Tailored Accounting Solutions are experts when it comes to all aspects of your taxes – including franked income – and would be very happy to help you prepare your next tax return to make sure you do everything correctly and get the maximum possible refund that you deserve.
We are here for you.
We offer Accounting, Taxation And Bookkeeping Services for our clients in Melbourne's Outer Eastern Suburbs. With a wealth of experience, and depth of knowledge, across a wide range of sectors, TAS will work with you to determine the best path forward for your business.