A question of taxes... (I'm looking at you Jan & Czar)

[Toefur]

(Mainly you two 'cuz you're Aussies, so should know more about Aussie taxes than non Aussies... maybe Moocow man knows his stuff as well, but seems to be MIA)

So now that I'm making plenty of money online, the fear of taxes has come up.

I know nothing about taxes. I don't know what to do, or how much I'm supposed to pay, and when and how.

I take it I have to pay taxes on the money I earn online right?

I know a guy and he was making $8,000 a month back in 2000 and at the time he told me he didn't pay any tax on it, and didn't declare it or anything; but if that's not right and I tried it, I could get into a lot of trouble, right?

I heard once though that tax for self employment people is like 47% or something. I hope to gord I'm wrong on that, because I can live luxoriously on the amount I make (when not taxed) but if it was taxed at a rate like that then I would be struggling to survive. :confused2

Though I heard that has something to do with registering a business. Like, you have to pay your own taxes, and also the business taxes.

If that's the case, I wont register a business for this stuff (I assume it's not law that self employed people have to register as a business?)

So yeah... what do I do about taxes? How much should I have to pay? And how can I go about doing that? And er... yeah... just... anything I should know?

Or, is it possible to open an overseas bank account (that paypal accepts) and dump all my money into that?

 

[Czar]

<disclaimer: I'm not a lawyer, accountant, financial advisor, etc. Please consult one of the above for clarification and don't take my word as gospel.>

Toefur, unfortunately you've received a great deal of inaccurate information thus far.

Scratch what you think you know, and start by taking a few hours to flip through the following two sites:
http://www.ato.gov.au/
http://www.business.gov.au/
The Business Starting Point (second site) is an essential bookmark for anyone wishing to do business within Australia (whether trading with other Australian entities or not).

You will have to pay taxes. Some of these, such as GST and PAYG - pay as you go - will likely have to be paid quarterly within your Business Activity Statement. BAS forms will be sent to you, complete with in-depth instructions concerning GST, PAYG and other fees and taxes once you have assigned an ABN number and GST registration to your business or company (see an accountant for instructions as to how this may be done).

You'll also have to file a tax return at the conclusion of each fiscal year, just as you likely do now. If you operate a business, you will have to take account of your expenses as deductions on your personal tax return. If, on the other hand, you operate a company (which is considered an independent entity just like a person), you'll have to file two returns - one for your person in which you pay income tax on your wage, and one for your company which will be making most of the claims regarding expenses and deductions.

Of course, you will be able to deduct most of the expenses related to the operation of your business (as long as these contribute to the business' ability to earn money), so at the end of the financial year, you'll only have to pay tax on your personal income and/or company profit - not as a percentage of your total earnings.

With a business such as yours, domain names, hosting, computer hardware, software, ISP charges and the like will all be deductible. Hardware will generally be deducted on a deprecionary scale, and it's best to consult an accountant for clarification on how much you can claim in this regard.

Anyway, there's a lot of ground to cover on this issue, so you are best to get professional advice, but I hope that the above was useful to some degree.

 

[Toefur]

Thanks for all that Czar, it's mucho appreciated... although all rather confusing and overwhelming. :confused2

I had just a quick look at the two sites, and there seems to be so much to know, and it's confusing to see what I do need to know and what I probably don't need to know.

Perhaps I should look into some sort of small business course at a Tafe or something.

I take it is ncessary for me to register as a business/company?

I guess I should really see an accountant, but they are expensive aren't they?

 

[Czar]

Not really. Visiting an accountant is an essential investment for any business person who isn't *very* well versed in accounting principles and practices himself, and a casual visit to discuss issues such as the proper establishment of your business and tax systems should only cost $60-$120.

Should you choose to set up a company, rather than a business, the fees will be significantly higher, but it could help you develop an important platform should you choose to start employing people or renting office space in the near future.

 

[Toefur]

I'm such a tight arse with my money though.

I guess that isn't too much though, really. Gotta spend money to make money.

I can't see myself needing (or perhaps even wanting) to set up office space or hire employees anytime in the near future, is it possible to register as a business, and later on change to a company if the need arises?

Does paying people to, say, make a set amount of graphics for me count as employing someone? (I would think no since it's not actual employment - like, 10 images for $X - but of course still a business expense).

So this is what I need to do to get started:

a.) spend a few hours at those sites
b.) see an accountant

Is that all I need to keep in mind for now? After I have done those tihngs I should have an idea of where to go next (as in registering ABN/Business and what not).

Cheers.

 

[Czar]

Those two steps would be perfect in terms of setting you on the right track.

Be sure to note down some questions/issues on paper prior to your meeting with the accountant so as to keep the conversation flowing and clarify all of the pressing issues in as efficient a manner as possible. That way, you're not groping for questions while he racks up the billable hours.

For you, a simple business name and ABN rego would seem to suffice. If you work with Australian suppliers (hosts, domain registrars, contractors) or customers then you should generally also register for GST. These three steps (minus accountancy fees) will only set you back about $90, and should be sufficient until your business is well established.

Working with individuals on a few casual jobs does not make them employees. Rather, they will be independent contractors of yours, which means that you don't need to withhold PAYG tax or contribute to their Super. If they are based offshore, the transaction will be simple. If, on the other hand, they're based in Australia, you will need to have them invoice you for the job and include GST in the transaction price. Additionally, if they don't have an ABN, you may have to withhold tax or have them complete a "Statement by a supplier" form (which you can pick up at the local newsagent) to state that they are pursuing the independent work as a hobby. (Moo knows all about this )

And yes, work completed by a contractor that contributes to your business' earnings is a valid deductible expense.

Hope this helps.

 

[mehere]

Being a company thats principle source of income is net revenue.
I pay 30%tax on income.
Income=revenue-costssssssss(including time)
Your acountant and or solicitor should tell you how to ofset this tax by paying yourself a small nominal income and re-investing the rest into growth such as ads,content,servers,computers etc etc.
When i became a company about 4years ago it cost about $1100aud for the companies right to trade.
Small things you might overlook that are advantageous to you are.....
1/6 your house as a deduction as office-space
then theres the heating phone internet etc.....
comuters devalue at 40% etc
As you can see the advantages outway the disatvantages
Off-course you will need a cleaner etc then you put your girlfiend or mother on your payrole all totaly legit
The other option you might have is to operate as a sole-trader
Works for me hope it helps

 

[Cyphix]

It costs $1100 to register as a company? Is this a "company" or a "partnership or sole trader" company type thing?

 

[}:8) Supermoo]

Lots of useful information here!

Don't forget to come back and tell us how it goes Toefur... as, even though I'm a long way off needing too... I don't really like the idea of spending money on accountants or lawyers aswell.

 

[Hk-]

im an aussie, do if have to pay taxes on humble banner clicks? and does age matter (ie. under 18, no tax but above yes?)?