Maths And Small Business

Tax

• There are a number of ways in which a business can be structured :

– Sole Trader – by yourself, you own and control the business. Plumbers, builders, hairdressers …

– Partnership – this is a business that is owned by between 2 and 20 people. Lawyers, accountants doctors and dentists.

– Company – complex formal type of business and is controlled by an act of parliament. Listed on ASX.

• Most companies are limited liability company. This means that the liability of the owners of the company is limited to the amount of money they owe for their shares. With a sole trader and partnership the assets of the owners can be used to be sold to pay off debt.

Taxation

• As a business there are a number of expenses that the ATO deem as tax deductible. These can be taken away from your assessable income to calculate your taxable income.

• It is important for a business to keep accurate records of all financial transactions.

• You want to reduce your taxable income so that you pay less tax.

Taxable Income = assessable income – allowable deductions

• The ATO puts out a tax table which is used to calculate the tax that you should pay on your taxable income.

• If you earn more than $19004 then you are required to pay a Medicare levy. This is calculated using your taxable income.

• For some people who do not have private health cover and earn over $50000 pa. (couples – joint income of $100000) They have to pay an additional charge of 1%.

• The first $18,200 of your income is tax free – this is called the tax-free threshold.

The text book uses these rates – the process is the same regardless of the tax rates

Example• Calculate the tax payable on an income of $58375 – with

private health cover.

Take Times Add – X+

- Look at the tax table to find where the taxable income falls.

- Go to the right hand side.

- Take the first number, multiply this answer by the next one and then add the answer to the final number!

- Work out the Medicare levy and then add the two numbers together.

• 58375-50000 = 8375• 8375 x 0.42 = 3517.5• 3517.50 + 11380 = 14897.50• Medicare – 1.5% x 58375 = 875.62

• Total Tax to pay –14897.50 + 875.62 = $15773.12

Income Splitting

• A couple will be taxed as two individuals.• If they were able to combine their incomes

they would be able to save money in regards to the amount of tax they would have to pay.

• Every now and then the government mentions this method – but nothing has happened so far.

Taxation for Business(Information only business taxed not tested)

• Sole Trader – they are taxed as an individual

• Partnership – they are able to split the income amongst the partners. The tax on each partner is calculated according to the rates for individuals.

• Company – the taxable income is taxed at a flat rate of 30%. It is known as Company Tax.

Extra Question

• You are part of a business with 4 other people. Your income per year is $450,000.

• Is it better to become a business for tax reasons?

• What are the limitations and assumptions associated with the above scenario?