What are the tax implications for those starting a business while employed?
Can you be a sole trader and be employed at the same time? What are the tax implications for an employee starting a business part-time whilst still being employed full-time, and do all sole traders need to register for GST?
Employees are paid a salary or wage by a company and subject to PAYG tax withheld at tax rates depending on the salary level. The annual payment summary showing gross wages and PAYG tax paid is included in the employee's individual tax return. Their is no GST/BAS implications here.
If that same person started a business part-time then it all depends on the legal structure of that business - sole trader, partnership or company and the income levels. If a sole trader (contractor or small business owner), then your business income (net of business expenses) is added to your salary & wage income in your annual tax individual return to work out the final income tax you pay. If you are a partner in a business, then your share of partnership business income is added to your salary or wage in your annual individual income tax return. Both sole traders & partnerships are not legal entities in their own right so their is no legal separation of income, assets & liabilities of the business from yourself.
If your part-time business decided to incorporate a private company then that business income & assets and liabilities are limited to that legal entity. You can pay yourself a salary or wage out of the business but then you are responsible for taking out the correct amount of PAYG tax and submitting to the ATO, paying super, pay company PAYG tax if at a certain level. Or you can take a drawing to reduce the capital you contribute into the business or you may decide to pay yourself a dividend if the company makes a profit. Salary/wages, PAYG (payment summary) and dividends from this company are then added to your other payment salary in your individual annual income tax return. There are obviously additional costs of setting up and maintaining a company vs a sole trader/partnership but it gives that business legal protection and it becomes a more cleaner cut, saleable vehicle should you wish to exit that business.
If you carry on a business in any shape or form, you must register for GST if your business turnover (sales/fees) is at, or above the GST turnover threshold, of $75,000 or more. If your GST turnover is below $75,000 you can choose whether to register for GST or not but you must stay registered for at least 12 months if you choose to register. Yes, it means doing a BAS either annually or quarterly or monthly, depending on your turnover levels. You can claim the GST on all your outgoings/expenses but must collect and pay the GST on your business sales. Your employment salary has no bearing on this as it is not business income.
I hope that makes sense.
You must keep record of all revenue generated through your side business for when the financial year ends, and do some research on GST implications. If you plan to operate as a sole trader, you do not have to register for GST, or submit BAS statements unless you are earning over 80K from your side business, though these things are optional and you can do so if you desire.
One of the first things you should check is to ensure your employment contract does not place any restrictions on you carrying out your part-time business. A lot of part time businesses start by doing something that is related to their main field of work, so it is important to know what you are permitted to do and not permitted to do. Failing to understand this can land you in hotwater with your current employer as well as legal implications for your new business venture.