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Checklist for preparing your tax return
Business registrations and insurances
Choice of a business structure
Retention of records

Checklist for preparing your tax return

Details of income needed:

PAYG Summaries

Statements of pensions or benefits

Statements of termination payments

Details of allowances paid

Distributions from partnerships or trusts

Asset or investment sales involving capital gains tax

Interest, dividends and other investment income

Details of expenses needed:

Car expenses, tolls, parking (where car use is deductible). Home to work travel is not normally deductible,

Cash shortages, where employee is liable

Conventions, seminars, training sessions

Depreciation of professional library, tools, computers etc

Donations to charities, school building or library funds

Home office expenses – telephone and electricity

Income protection insurance

Interest on loans for deductible equipment or income producing investments

Purchase, laundry and maintenance of deductible uniforms and professional clothing

Overtime meal allowance

Self education expenses where the study is related to your present work, including travel to and from the institution. HECS/HELP fees are not deductible

Stationery, briefcases, calculators, diaries, personal organisers

Subscriptions to trade and professional organizations

Tax agent fees and travel to tax agent

Telephone, pager, beeper (work related)

Tools and equipment

Trade and professional journals

Tax offsets and rebates:

Medical expenses:
An offset of 20% of the net medical expenses (after all refunds) above $1,500 is available. Medical expenses are those performed or prescribed by a medical practitioner including doctors, hospitals, dental, optical and pharmaceutical, but excluding cosmetic procedures. Relevant medical costs are those incurred by a resident taxpayer and his/her resident dependants.

Superannuation contributions (Self):
A permanent resident, aged less than 71 at 30 June, who earns at least 10% of their assessable income as an employee or from a business will receive a Co-Contribution at the rate of $1.00 per $1.00 super contribution to a maximum $1,500 where assessable income and Reportable Fringe Benefits are less than $30,342. The Co-Contribution will scale back to be eliminated at an income of $60,343.

Superannuation contributions (Spouse):
There is an offset available to a person making a superannuation contribution for a low income spouse, including de facto. The maximum offset is $540 on a contribution of $3,000 for a spouse with an assessable income (including reportable Fringe Benefits) of less than $10,801 and the offset will scale back to be eliminated at an income of $13,800. If the spouse is aged over 65 the work test must be met.

Note: Both the above are based on assessable income and not taxable income. Assessable income is total income before any deductions, except that assessable income is reduced by deductions allowed against business income.

Education Offset:
A refundable tax offset of 50% of costs of computers and accessories for school use, school books and stationery and internet. Maximum amounts are $750 per secondary student and $375 per primary student.

Medicare Levy Surcharge:

A 1% Medicare Levy Surcharge is imposed on those without appropriate private hospital cover who earn more than $70,000 taxable income and Reportable Fringe Benefits (Single) or $140,000 (couple or with one child). The upper limit increases by $1,500 for each additional child. Appropriate cover in this sense excludes hospital cover with a high excess so check with your health fund.

Business registration & insurances

Australian Business Number:
While it is not compulsory to have an ABN there is often no alternative as any business paying another business must withhold 46.5% tax if an ABN is not quoted. You could operate without an ABN providing services only to private consumers but I recommend applying for an ABN. There is no cost and no ongoing obligation simply by having an ABN.
Applications may be lodged online at www.business.gov.au

Goods and Services Tax:
Any business with a turnover (that is total sales, not profit) exceeding $75,000 must register for GST. Below this amount you may elect to register if you wish.

If you provide services mainly to private consumers you can offer your services more cheaply where you are not GST registered and so not adding 10% to your account.

If you work mainly for other businesses and provide materials or have other costs you will be less competitive as the business for which you work will not receive any credit for the GST embedded in your costs.

GST registration is part of the ABN registration process.

Employing staff:
If you employ staff you must register as an employer and withhold the appropriate tax from salaries paid, and provide a PAYG Summary at the end of the financial year with a copy and a reconciliation to the ATO.

You must obtain a Tax File Number Declaration from each new employee and send the original to the ATO.

It is compulsory to pay superannuation on gross salaries, in all but very limited cases, and to hold Workers Compensation insurance.

Registration for PAYG tax withholding is part of the ABN registration process.

Business names:
If you trade under any name other than your own name, a company name or the name of a trust, it must be registered as a business name with the NSW Department of Fair Trading.
Details are available at www.fairtrading.nsw.gov.au or telephone 9895-0111.

Personal Services Legislation:
If you provide personal services such as bricklayer or most building trades, secretarial service, accountant, lawyer etc as opposed to operating a business such as a retail shop or a semi trailer, where the income is generated more by the business assets than by the individual’s services you need to consider the ATO PSI Legislation. There are restrictions on deductions and income splitting if you do not qualify as a Personal Services Business.

Personal Services Business is defined as :

Uses business premises, not being your home or the premises of anyone you work for,

Employs or sub lets more than 20% of the main income producing work

Is engaged to produce a result (eg an invoice to brick up a cottage at a fixed price rather than an invoice for a number of hours bricklaying at an hourly rate)

Has unrelated customers so that less than 80% of the income is derived from any one (or related) sources

If you do not meet one of these tests you are classed as simply providing personal services and can claim only those expenses which could be claimed by an employee in similar circumstances, cannot split your income with a family member and have restrictions on claiming car expenses and superannuation contributions.

Insurances:
You should consider appropriate insurances which may include public liability, professional indemnity, income protection, loss of cash, loss of business, shop fittings, shop plate glass, tools, car etc.

Workers Compensation insurance is compulsory where you have employees.

Payroll Tax:
Payroll Tax is a NSW Government tax on payrolls exceeding $623,000.
Tax is at the rate of 6% (reducing to 5.75% on 1 January 2009) of the excess over the threshold and so is penalty for employing staff! Details are available at
www.osr.nsw.gov.au

Choice of business structure

You have four choices of business structure under which to operate your business.

Sole Trader:
The simplest and cheapest is a sole trader where you are the legal entity trading under your own name, or a registered business name. The only cost is the business name registration, if applicable. The main disadvantage is that you are personally liable to the full extent of your assets for any action against you or the business. You can split your income with family members only by paying them a salary involving an obligation for compulsory superannuation and workers compensation.

Partnership:
Another cheap and simple option. A formal partnership agreement is not essential; but may be advisable especially where non family members are involved (or where family members later separate!). The business trades under your joint names or under a registered business name. Income is shared on an agreed basis between the partners, usually, but not necessarily, one half each. There is no flexibility in the share arrangements once established. As with a sole trader your personal liability is unlimited.

Proprietory Limited Company:
The Proprietory Limited Company is becoming increasingly common with many sub contractors being forced to incorporate as the providers of their work protect themselves from the potential liability of a sub contractor being deemed an employee with all the associated costs.

The Proprietory Limited Company provides a large degree of protection of your personal assets as any claims should be limited to the company’s assets and should not flow to a claim on your personal assets.

You choose the name of the company and it may operate under this name or a registered business name.

You, and family members where appropriate, are employees of the company with a consequent liability for compulsory superannuation of 9% of your gross salaries and compulsory workers compensation insurance. The payment of salaries provides a degree of flexibility in the distribution of income.

It may be possible where a company has retained profits and paid tax that you may be paid a fully franked dividend from company profits (this is taxable in your hands but with a credit for the 30% tax paid by the company). Dividends are not subject to superannuation nor workers compensation so this strategy may reduce the impact of the costs but should be used only to a limited degree as the ATO guidelines expect that company profits derived mainly from an individuals efforts should be promptly paid out as salaries with the appropriate tax withheld. A dividend may also be deemed to be wages subject to Workers Compensation insurance where your wages are less than a commercial rate and the dividend is seen to be in lieu of wages.

The cost to acquire a shelf company is around $900 and an annual $212 filing fee is payable to the Australian Securities and Investments Commission which monitors companies. Accounting costs are also likely to be higher than for more simple structures.

Trust:
The trust provides a similar degree of protection of your personal assets as any action should be limited to the assets of the trust. Again you and working family members would normally be paid a salary with the same associated costs of superannuation and workers compensation insurance.

You choose the name of the trust and it may operate under this name or a registered business name.

Distribution of any profits above the salaries paid is totally flexible with varying amounts being able to be paid to any beneficiary of the trust. The profit distribution is not subject to Workers Compensation insurance nor to compulsory superannuation providing wages are paid at a commercial rate and the distribution is not seen to be in lieu of wages. A small amount of around $600 can be distributed to children, but more than that amount attracts penalty rates of tax.

The establishment cost of a trust is around $500, and since it is usual to have a corporate trustee, there is the additional cost of acquiring the trustee company. An individual may be trustee but as there is Court precedent that a Trustee may be liable for Trust obligations it is safer to have a corporate trustee where the company has no material assets.

Retention of records

The ATO requires records to be held for five years from the date of claim, and in relation to Capital Gains Tax this is five years from the date of sale of the asset. As an example if you bought shares in 2000, reinvested the dividends and sold the shares in 2006 the records of the initial purchase and each reinvested dividend would be held for five years after the sale in 2006.

Workers Compensation records must be held for seven years, and Long Service Leave records (construction industries only) are also required to be held for six years.

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