wesleyk

hi there

im starting to work on an ABN number. and i have been told that i have to pay me own tax every week. how do i work out how much tax i have to pay so i dont get stung at the end of the tax year

ozhappy981

Eh??? You want to pay your tax in advance, before the taxman asks you for it? Why would you want to do something crazy like that?

What you should do is estimate how much tax you will have to pay at the end of the tax year. Then each week, put that money aside in a bank account where it will earn you interest .

At the end of the tax year, you do your tax return (don't forget to claim your deductions) - and the taxman then tells you how much tax he wants. You pay it from that savings account (but get to keep the interest).

That's what you should do in the first year.

In the second year, the taxman will send you a PAYG Instalment Notice, demanding that you pay the tax every quarter - no choice in the matter.

To estimate how much money you should put aside each time you get paid so that you do have the money for the taxbill at the end of the year, here are the 2010 tax rates (don't forget to add an extra 1% for Medicare):

$0 - $6,000: Nil
$6,001 - $35,000: 15% of excess over $6,000
$35,001 - $80,000: $4,350 plus 30% of excess over $35,000
$80,001 - $180,000: $17,850 plus 38% of excess over $80,000
$180,001 and over: $55,850 plus 45% of excess over $180,000

In case this looks too complicated:

1. Until you earn $6,000, you do not need to put any money aside for the taxman.
2. When your earnings to date go over $6,000, start putting aside 16% from each pay.
3. If your earnings go over $35,000, start putting aside 31% from each pay.
And so on.

Siren & Brian

^ ^ ^ what he said ^ ^ ^

ozhappy981

She

MartinLuther

Note also that once on PAYG the January payment is delayed until Feb because Christmas cost more than you expected

wesleyk

ha ha ha

cheers for all the info. i think i can manage this now. it all sounded complicated when my boss was explaining it.

arkon

Weekly? I have an ABN and pay quarterly.

wesleyk

i didnt mean pay the tax man each week..i meant how much should i put aside each week, so i dont get caught out and spend all my cash, then get stung with a huge bill at the end of the year.

so your useing your ABN? what sort of stuff can you claim on your tax return? for example is it just like beeing self employed in england. claiming petrol, clothes, phone bills

MartinLuther

30% is a good rule of thumb. In most cases that'll create a surplus at the end of the year. I wouldn't go below 25%.

ozhappy981

Working on an ABN does not mean you are automatically regarded as a "business" at tax time.

Depending on how many clients you invoice and whether they are related (this is just a simple summary of the rules) you will be regarded as having "Personal Services Income" or as a "business" (i.e. sole trader).

If it's PSI you can effectively claim the same deductions as an employee (yes to phone bills, no to travel to and from work, no to clothes unless it is a uniform or protective clothing, various other things if they are work-related).

If it's "business", you will be able to claim a lot more including travel to and from work.

To give yourself the best chance for deductions at tax time, make sure you keep a logbook (opening and closing odometer readings when you started work through the ABN and at 30 June 2010; recording for a minimum of 12 weeks all journeys and keeping a record which of the journeys are business and which are private).

Also keep receipts for everything vaguely related to work (any tools you buy, petrol, car servicing etc etc).

At tax time visit a tax agent with all your receipts and the logbook and they will sort out for you whether you are PSI or business and what you can claim.

wesleyk

thanks for all the help guys. im kinda starting to understand it all a little more now