While we wait for the recent Census data to give us an up-to-date snapshot of how Australians work, it’s clear from many other studies that today’s freelance economy is booming.
Research from 2014 indicates that 30% of Australian workers are going it alone. So much so, they’re contributing some $51 billion in freelance earnings to the national economy.
Being your own boss can be great, but there are a lot of financial and administrative responsibilities that come with this. It’s safe to say, whether you’re a writer, graphic designer, website developer or a ride-share driver, most likely you’d rather focus on doing the job you’re passionate about, than getting bogged down in admin and paperwork.
While there are many tools out there to help you, what’s most important is to engender a discipline around managing your tax responsibilities.
Keep track of income and expenses
Submitting your Business Activity Statement (BAS) and your annual income tax returns can be onerous, making it difficult to remain tax compliant if you don’t have a good understanding of all the moving parts.
For freelance content strategist and founder of consultancy firm ‘Happily Contented’, Samantha Murphy, the ever-changing laws around tax deduction and appropriate documentation is always a challenge.
“I’m an American, so when I moved here I was shocked as a business owner about what you could claim for a tax deduction. For example, only recently have the laws changed so that freelancers can write off car payments,” says Murphy.
Many people are fearful of doing their taxes, but Murphy prefers to make the process easier by keeping a careful track of receipts, income and expenses, so she can get on with running her business.
“My skillset and interests are so broad that being an entrepreneur is the only way for me to fully experience all the different aspects of who I am,” she says.
Get your head around GST and superannuation
“You’re required to register for GST if you have an annual gross turnover of over $75,000,” says PwC Corporate Tax Manager, Anthony Barca. “But if you’re a ride-share driver the ATO will require you to register for GST regardless of turnover.”
You also have to lodge a BAS, which includes information on the total value of your supply and your purchases.
“Normally, superannuation contributions are not a requirement, but are generally recommended. The earnings in your super are taxed concessionally, but as an individual you’re taxed at your marginal tax rate, so it’s a good way of ensuring you’ve got your future covered,” Barca says.
Personal contributions can be included as a tax deduction only if you derive 90% of your income from sole trader work. If you’ve got more than 10% of your salary coming from an employer you can’t claim personal contribution on your deduction, advises Barca.
Simplify tax time by getting the right tools
So that you don’t get bogged down in admin, get tools that can help you manage it. Platforms like Airtax have been developed specifically for freelancers as a BAS and income tax return lodgement solution, where you don’t even have to visit your accountant.
“You can complete the submission online in your own time and when you submit your BAS and income tax return, it will be processed with the ATO by a PwC tax specialist,” Barca says.
Using a registered tax agent such as PwC, the ATO allows an extension of 28 days from the standard submission date. Currently the most recent BAS period (April-June 2016) submission deadline has passed, but by using Airtax, customers have up until 25th August 2016 to submit to avoid penalties.
Remain tax compliant and avoid penalties
If you fail to remain compliant by not lodging your BAS by the due date, you can incur a failure to lodge on time (FTL) penalty, says Barca.
“That’s a $180 penalty for every 28 days you are late, up to a maximum of five 28-day periods. You could owe the ATO $900.”
With your income tax you can also incur this penalty. If you owe the ATO money and you’re late, they’ll also charge you an interest charge at a compound rate on the amount outstanding.
“It’s vital you are pedantic with your tax compliance in terms of the lodgement date. No one wants to pay anything more than they need to.”
It’s easy to get in that place where you’re fearful about facing your tax obligations, but as freelancer Sam Murphy knows all too well, keep to your deadlines and get it done as early as possible.
“I’m already reaching out to people and chasing things I need to do my taxes for next year.”
Written by: Thea Christie
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