Tradies are the backbone of Australia – keeping our country running, getting buildings built, and making sure essential services like water and electricity keep flowing.

It’s important work, and the ATO wants to make sure you can spend more time on this and less time on your taxes, so they have a dedicated web page just for you – ato.gov.au/tradies. This page is updated regularly with everything you need to know, whether you’re an employee, a sole trader using your own ABN or both.

If you fit in both categories, then you need to be aware of your obligations, and how to make sure you’re getting your taxes right.

Income

You already know your employer withholds tax from your income, but as a sole trader are you doing the same? When you’re your own boss, you need to work out how much additional money you should put aside to cover your taxes.

When you lodge your annual tax return, the income you earn from all sources must be declared for the ATO to calculate the correct amount you need to pay for your:

• Income tax
• Medicare levy, and Medicare levy surcharge (if applicable)
• income contingent loans (e.g. study loans, trade apprenticeships and other training programs).

So you’re not surprised when tax time rolls around, you can use the ATO’s pay-as-you-go instalments calculator to work out how much income you should be putting aside, and can then:

• make tax pre-payments into your tax account
• put money aside for your expected tax bill
• voluntarily enter into PAYG instalments.

Deductions

When claiming deductions, you can only claim money that you’ve spent, where the expense directly relates to earning your income, and you must have a record to prove it (usually a receipt). If the expense was incurred for both work-related use and for personal use, you can only claim for the work-related portion.

For example, if you have a car that you drive it to perform your work duties, your sole trader business, and for personal use, then you need to make sure you keep a record of the use for each part.

You can calculate your deductions using the cents per kilometre or logbook method for your car.

You can then claim any use for work purposes in your individual tax return as:

• an employee under D1 work-related car expenses
• a sole trader under P8 in the business and professional items schedule.

If your expenses are for a vehicle that isn’t a car (greater than 1 tonne carrying capacity such as trucks, heavy vehicles, and some utes), then you work out your actual expenses for your work-related travel in the vehicle and claim the deduction in your tax return as a work-related travel expense (D2) not as a work-related car expense (D1).

Employees

If you’re a sole trader and you hire your own employees, it’s important you meet your obligations to them as well, including paying their salary or wages, and superannuation contributions. Remember, these are payments your employees are entitled to and do not belong to your business. You can be fined if you don’t meet your employer obligations.

Finances

Some people’s finances may be stretched from time to time. The ATO has some tips for keeping on top of your finances and making sure things run as smoothly as they can.

• Separate bank accounts

Set up separate business bank accounts for the GST you collect, PAYG withholding and your employees’ super guarantee, so you have the money to pay in full and on time. You can also use different debit or credit cards to help you separate business and private expenses.

• Keep good records

Under the law, you need to keep accurate records of your tax, super and business affairs. These records will help ensure you’re claiming everything you’re entitled to, staying on top of what you need to pay, and paying on time. The ATO app can help you maintain accurate records.

• Lodge on time & pay in full

Make sure you know your due dates, keep on top of your obligations and pay in full to avoid costly interest charges Consider also setting up calendar reminders for your regular lodgment and payment obligations.

• Check in with your cash flow

You can use online cash flow resources to help you meet your financial obligations and strengthen your cash flow capability. They can help you work through important business decisions, like, can you afford to hire an apprentice? Should you consider charging more for products? Can you afford to buy more assets and expand?

The ATO is always on hand to help tradies, so visit them at ato.gov.au, or ask your own questions at ATO community.