She's On The Money - THE BUSINESS BIBLE: Setting Up Your Small Business Books

Episode Date: November 21, 2023

ABNs, taxes, bank accounts, it's the very unsexy side of setting up a business, however do it right the first time, and your future self will thank you! V and Jess outline how to register business, which one is right for you, and how to make tax time easy! Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money.

She's on the money. Hello and welcome back to the Business Bible. I am Victoria Devine, the owner of several successful businesses. It's not going to get less weird saying that, is it Jess? And I am joined by one of the hardest working side hustlers I know, Miss Jessica Ricci. Oh, how kind. I'm very excited. I'm a nice lady. You are a very nice lady. I'm pumped to get into episode two of the Business Bible. I am also very excited because today is arguably one of the sexiest topics, Jessica,

that we could talk about. We're going to set up your small business books, Jessica. I feel like you're using the term sexy very loosely right now. Oh, no, no. I think it's really sexy. Today we are talking tax. We're talking AVNs and bank accounts. Was that sexy? Talk dirty to me. Tell me more. In all seriousness, though, Jess, this is the one thing that I harp on and on and on to people saying, I'm going to start a small business or I've got a small business. Please set up your books properly from the very beginning to ensure that everything runs smoothly and we don't get into any trouble with the ATO because there is honestly nothing less sexy than having the ATO knocking on your door, right? Like it's the one

thing that I just go, no, just go and get another bank account. Just go and set it up separately. Get an ABN. Stop underestimating the power of your business. Like you would hear it all the time where people are like, oh no, I can't be bothered. Like I don't do that much work. Like you could just be an influencer on the side, you know, making a couple of hundred dollars or you could, you know, have like, and I always use a candle business because I kind of like feel like that's scalable. It could be as big as Glasshouse or like a Koya or something, or it could just be something that you like spend Sundays like pouring candles because you really like it and sell them to friends and family. But it's one of those businesses where you might go,

oh, it's not worth it. No, it is worth it. And the second you say it's not worth it, you're not believing in your business. And so having set up books is going to be the stable foundation of making sure that your business is successful, which, Jessica, is very sexy. That does sound very sexy to me. I think it's probably really confusing to a lot of people, which is why they don't often do it properly. But as someone who has kind of been through it, I think there is nothing worse than getting to tax time and being like, oh my God, everything's everywhere. So if you set it up now, you're saving yourself all of that stress in six to 12 months time. And you too will agree that it is very sexy. I promise. I promise. And

it can be super complicated, right? So we'll try and make it as easy and clean as possible today, starting with getting an ABN, Jessica. You have one. You're a big dog. An ABN is what is called an Australian Business Number, which is a unique number that identifies your business to the government and also to your consumers. It's absolutely necessary for tax purposes, for invoicing and at times for your banking. Okay. I have an ABN because I got one as a kid because I modeled for Target once. Oh, you modeled for Target once? Yeah, I was in a big post and my mom tried to take it home. They wouldn't let it. So I actually never, I think they needed it for the store. I think they were just like, who is this crazy woman? Please get out of the kids section.

That's very fair. But I had one set up and I think I just had to renew it. I didn't actually start from scratch. So tell me a little bit more. Okay. So it is really important because when we actually talk about an ABN, it's not as simple as just like trotting down the road and picking up your ABN. I mean, it is that simple online. You just apply for it, but there are actually several different options when signing up for an ABN. And I feel like lots of people get analysis paralysis. So let's go through the three main types today. So the first is not having an ABN at all. So no bueno. This is when you choose not to register your business with the government. And this is only for small businesses that turn over less than $75,000 per financial year. So

it means that you're kind of functioning under your personal name completely. It's perfect for side hustles. Or if you want to make a bit of money on the side and you aren't expecting the business to grow and you don't really want it to grow, you're just like, oh, I did some gardening and, you know, one year I just was like trying to smash down debt. And so I offered my gardening services for, you know, the period over Christmas and I'll never do it again. But I did accept business income. And obviously I wanted to make sure that that was all clean and I paid tax on it and stuff. So that could be a good example. You might also be, as I said before, a mini influencer doing a few brand deals here or there, or maybe you're like side hustling as much as Jess

does and you're renting your clothes out on the side. So you might have like a few dresses listed on the vault or something. That is not a hobby. That is actually something that you need to pay tax on. And I think there are a lot of people who are quite flexible about tax. I'm not one of those people because I'm kind of like, do it right. Do it once. Don't get in trouble. Full stop. End of story. Whereas I have heard historically, people go, oh, well, it could fall under being a hobby if you're earning less than $5,000 a year from it. And I look at that and I just go, yeah, but like you're trying to generate additional income. It's not like I just sold a chest of drawers on Facebook marketplace once off, like you fully set up this like business structure online to generate

income from your wardrobe. And so like, I'm a little bit more cut and dry and I go, no, you definitely need to be doing tax on that. But the important thing there is talk to your accountant if you're worried, because obviously I can't give you personal advice, but essentially you could just be selling some goods that you create yourself knowing that it's just never going to exceed $75,000 a year. So like it's kind of, you know, the gateway to having an ABN. Yeah. Interesting addendum. If you're providing a service to somebody, and I only know this because it happened to me once. If you do not have an ADN, often the company or the person paying you will withhold the highest tax rate. It's like typically you would be taxed at your

marginal tax rate. So for example, if you were being taxed at, is it 23, 24, what's the? 32 and a half percent. Oh wow, I was really far off. I would like to swap it to 23. You've just like flipped the numbers there. So she's not wrong. She's just a little on the wrong side of the tracks. But I'd like to do that. Yeah, if we could drop it down. Sign me up to that. If you were earning under the threshold, your business income would be taxed if you were

trading at like that same tax rate. But if you're supplying to somebody else, they will often withhold the top rate of tax. So it might be higher. So you end up paying more tax than you would if you had an ABN. A little bit complicated, but. Also good to know. Good little tidbit on the side, because not having an ABN, obviously you kind of go, oh, well, V, I'm never going to make more than 10 grand from this little side hustle. However,

it also leaves you open legally to a lot of like impact, if that makes sense. So, you know, if something happens, Jess, your butt's on the line. Like it's you personally. And I just go, oh, like if I'm starting to provide a product or a service, like I want some level of protection. And also I just like things to be quite clean. Even if you don't have an ABN, I would still be looking at having your own bank accounts and making sure that your business income is separate from your personal income just to make things easy for you. So don't think that you're going to get out of me giving you a sexy banking structure just because you go, no ABN, no worries. Jess, no ABN, more worries. More worries, more problems. Tell me about the next category,

which is actually the one that I fall into. Okay. So this is sole trader. So this is for a business of one person or someone likely to pay for contractors or freelancers. So look at the future of your business. Do you see it just being you? Are you just always going to freelance? This option is free, sexy, and can be done through the ATO website and only through the ATO website, and it can be done really quickly and easily. When you're Googling set up ABN, please do not click any of the links that are like, this professional will help you. No, don't do it. it's really easy. It's really easy and it's free to do. Don't pay some pleb who's trying to scam you, really. Literally take advantage of you. Also, on that, every year, Jess,

I get multiple of these letters in the mail from people going, your ABN's up for renewal or something of the like. Read it. Is it from the ATO? If not, it's a random marketing company who has searched your ABN on the ABN website. My address is on there, like my business address, so that people can contact me. That's how business works. But they send a little marketing email that looks like an invoice and they go, just, you know, scan this QR code and pay us and we'll get it all sorted out for you. That's awful. Yes, it is a trap. It is a scam. Oh my gosh. So we only talk one-on-one with the ATO. There will never be a third party unless it is your nominated third representative, which will probably be your accountant. So if it is not coming directly

from the ATO and it is from another company, run. Run because they're scary. But Jess, you're a sole trader. Why did you pick sole trader for your personal circumstances and not just having no ABN? I think it was kind of, I was invoicing companies and they were kind of going, where's your ABN? And I was like, I don't have one for you to put into your system. Let me have a look. And a lot of the times companies do need them to set up like purchase orders and things on their end. And that was when I was like, oh, I need to renew the one. And thankfully I had one that was existing. And that's just as easy to renew as it is to set up. Honestly, you just need some identification. Yeah. Let the government know what the purpose of the business is and hit

submit. Like it was so easy. It was so easy. And I think it also made me feel a little bit legitimate too. Oh, she's got an ABN on her invoice. Yeah. Like I felt like a proper person that was actually trading goods and services. You know, I felt like it just made me a little bit more legit, which might be silly, but. No, no, no, no. I think it's really important to feel legit when you're doing your business as well. I know it can be, you know, a little bit fluffy because people will go, well, you know, if one person ends $10,000 with no ABN and you're saying that having an ABN, I'm still just going to earn the same amount doing the same thing. You might go, well, what's the point? Yeah. The point can sometimes honestly be legitimacy. As somebody

who hires a lot of freelancers and sole traders to do like, you know, random content, sometimes, sometimes we'll do events. Yeah. I want you to have an ABN because it protects me. It means that I am, you know, paying an invoice directly to an actual business that can be traced, that everything's clean. Yeah. And so I prefer to work that way. So often it could actually be the difference between you being picked and another sole trader being picked. Yeah. So I think that it's important to just set it up to make it as easy as possible for your consumers and your clients as well, because the less friction during that process, promise, the more money will come in your door. Yeah, 100%. There is a third option. And that's what I have. I have

a company set up. So a company is a legal entity in its own right, unlike a sole trader. So there's a bit of protection for you and your personal assets, obviously having a business in between them, which to me, sexy, because I didn't work this hard to, you know, have something happen in the future. Obviously, like, I'm pretty open and honest about it. It's not like I'm worried that something's going to happen, but I don't really want my house to be at risk when I've got a company. Like, you know, if you're earning $10,000 from a side hustle, that to me is quite different to my entire livelihood being at risk. And like, I'm responsible for a lot of people's incomes. So I just want that protected. The buffer is nice. I'm sure Jess, you feel a lot

more protected knowing that there's a business structure there. There's something legit set up. The only way to employ full-time, part-time or casual staff is to have a registered company. so you can't just be a sole trader and hire someone you actually have to set up your entire business structure differently to hire your first employee which if you're looking at it you know in your circumstance Jess I doubt you're ever going to hire an employee because of the way that you work and what your plans are but like what if you were like oh actually I want to take content creation full time like I'm going to take this really legit one day my personal income is going to outweigh the amount of income that I make in my full-time job and I'm going to quit.

Yeah. That's exciting. What happens when you quit, Jess? You might need to hire a personal assistant, you know, legit. If you've taken this full-time, you might want to expand and have that support. So you need to think about this. Could be the same. My favorite example, the candle business.

It might be you pouring candles on a Sunday afternoon because it's really therapeutic. One day you go viral on TikTok. Exciting. Money win, like such a business win. We'll talk about going viral on TikTok and a whole episode one day, but you go viral, everyone's placing candle orders. You've only got two hands. You've only got two hands. How do you pour all the candles? Exactly. It just gets very stressful, Jessica. Yeah. So we need to think about what could happen in the future, but it is an investment. So it does cost between $474 and $576, depending on the business that you are registering.

and it does come with a bit more responsibility in that you need to do a bit more reporting. So you're likely going to have to submit quarterly documentation to the ATO about what's going on with your business, how much you've earned, how much tax you are anticipating to pay at tax time and something that I do, which a lot of small business owners do, is pay what's called BAS and BAS is essentially paying your tax in advance because there is nothing more stressful as business increases right even as business doesn't increase like jess how's tax time as a small business owner not very fun right like but if you're paying bass you're breaking up the tax that you're paying throughout the year and then tax time comes and my accountant sits me down and

we kind of do like a audit of like what have you paid what are things that we could now claim what are things that you might have missed out on and what are things that you still have to pay for and my tax time, like come June 30, I look at it and I go, okay, well, I'm not going to owe thousands and thousands of dollars. You know, there's a bit of cleanup going there. So like BAS, it's a business activity statement, if I didn't say that before, but a BAS is kind of like predicting based on your past performance, what your future tax will be so that I don't end up in a sticky situation where I have a heap of tax owing all at one time. Yeah. And that's all you can ask for, isn't it? Okay. So question. Yes. If I'm currently a sole trader and I've

picked sole trader because I think that's going to work for me. I'm just working by myself, doing my thing. Doing what you're doing now. Exactly right. What happens if I do get to the point, like you said, in a couple of years where maybe I do leave my full-time job and I do need somebody to come on and help. Can I change? Of course you can. Although it does get a little bit difficult changing. So that's why I always recommend people, you know, you go, oh, it could be 450 bucks like to set up the entity to begin with. Why bother? Sometimes it's worth spending the money on the structure to begin with, if that could even be a possibility. And if it doesn't become a possibility, you just have more protections. That's not the end of the world.

Please don't get me wrong. I totally understand that it's a privilege to be able to afford literally everything. As somebody who started their business by making all of their graphic design on Microsoft Office and screenshotting it. Girl, I get it. But it can be really difficult to change from a sole trader ABN to a company ABN down the track. So I'd really suggest just get it right the first time. But it's not just the difficulty in the paperwork. It can actually be costly to set it up and change it because you're going from a business that, you know, as a sole trader has value into another company and structuring it actually can be a little bit more complex than what it seems. So obviously you're going to want to weigh up your decisions

financially, time-wise, and work out which one is the right one for you. Because obviously moving to a company is expensive. Not to overload you, moving to a company is expensive, but who then owns the company, Jess? So it's not just going, oh, well, maybe I'll own your company, Jess. That's not the question I'm asking. So my personal structure, and this is why I love the business Bible because I can just tell you what I do. I'm not saying that this is the right thing for you. This is the right thing for me. But I, when I set up my companies at the same time, established a family trust. So my family trust owns my businesses, not me personally. You personally can own a company, but you need to maybe spend a couple of hundred dollars sitting

down with an accountant going, well, if I'm going to set up this company, what is the best way to protect me? What is the best way to own this? Do I own it personally? You can totally own it personally. That's fine. That's a really simple structure. But your accountant might turn around and be like, well, actually, what are your plans for the future? So one of the reasons why we made this decision is because in the future, before my business made any money, I was like, you know what, I would love for the structure, you know, it's kind of aspirational. It gave me a lot of motivation as well. I'd love to be able to buy an investment property and I would love to be able to put that investment property in a trust. So in the future, I can distribute the dividends of that

investment property down to my family members. Could I afford an investment property at that point in time? No, Jessica, the answer is no, because I was in debt when I started my business. I was going to say, did you even have one property at a time? No, pipe dream, pipe dream. But we want to make sure that we're setting ourselves up for success. And that's one way to additionally protect yourself that you really should have the conversation with an accountant and go, well, what does that mean for me? Like, you know, Jess, you might be hiring your first assistant or content creator or whatever you're doing, but what next? Where does the ball roll? Yeah. So I think it's important to understand.

A hundred percent. To switch gears ever so slightly, I just want to go back a few steps because earlier we were chatting about the $75,000 threshold. And so if you're earning less than $75,000, you're all Gucci. But what happens when you're earning more? Because that's what we all want, right? We want to be earning heaps of money. We're going to become so rich. We're going to be rich AF. So as soon as your gross income hits $75,000, gross income is total earnings prior to tax or deductions. So when you look at that number, I think it's gross because that's what you could have taken home but you had to pay tax. That's so smart. So and then net is what you captured in the net because really big holes Jessica. So you're not going to forget that

now but you need to register and pay what's called goods and services tax. Yeah. So I'm a finance girlie at heart. If you send me an invoice Jess and you're not charging me GST immediately I know how much your business turnover is. True. I know you're earning less than $75,000. Yeah okay. So This is, again, not personal advice. Do you know what I was doing before I earned more than $75,000, Jess? What? I was still charging you GST. I was paying GST because you can pay GST irrespective of what you earn. It's choice up until $75,000. After $75,000, it's compulsory. Before $75,000, they're like, you don't need to do this. You could if you wanted to. Me earning $10,000. I'm like, I want to, because do you know why? It's kind of like left pocket, right pocket.

I'm charging you Jess, 10% GST gets added to your invoice. I put that 10% to the side and I just pay it to the government. So I'm not losing money by charging GST, but I knew that by sending out an invoice that charged GST, people would immediately go, oh, she's done this before. She's been earning a fair bit. It's that professionalism thing again. Legitimizing. A little bit sneaky. Should you do it? I don't know. You do you boo, but I did and it made me feel powerful AF. I love that for you. So GST is essentially an added 10% of the product or service that you are selling, which has to be paid to the tax office. It's not your money. As I said before, it's left pocket, right pocket. Like it's not going to cost your business more unless you

somehow have not a clean banking system and you forget about the 10% and then you allocate it to something else and then come tax time, they're like, hey, by the way, you've got to pay your GST and you're like, wait, what? I don't have that money right now. Which is why we want clean banking systems, Jessica. But it has to be paid and you can't just be having no ABN. You must have an ABN at this stage. So the second you get over $75,000, if you had no ABN, babe, it's time to get an ABN. Like it's non-negotiable at that point because the ATO looks at it and goes, this is pretty legit. Like $75,000 is a lot of money that we've let you earn. So once you hit $75,000, your job in business now has two rules. First, running the business, and second,

collecting tax for the tax office. Oh, tax man's sounding pretty happy about that. He's a nice guy, I promise. What does happen if we are maybe not keeping a close enough eye on our bank accounts? Maybe we haven't structured it in the best way. Definitely not speaking from experience, but what happens if you miss the $75,000 milestone and you are late to register for GST? Probably going to have a meltdown. Yep, fair. Probably going to just be a little bit anxious, a little bit stressy. We're not going to let that be an option. I would register for GST when setting up my ABN, just being real clean from the very start, to be honest, for a few good reasons. So obviously, as I said before, once you start charging GST, that's going to be an extra

10% for your clients or customers to pay. And if you start prices including that 10%, you don't have to re-talk to your clients, Jess. True. So like you get this $75,000, you're partying, you've probably gone out with your partner or your friends, have some champagne, like look at my business, I'm killing it. Yeah. Now you have to go to your clients and be like, by the way, prices are increasing 10%. You don't get more. Actually, I just have to start collecting money for the ATO. I didn't think about that. Your client's not going to love that. Yeah. Not because they're not happy for you, but like no one wants to pay more money, Jess. So if you just did it from the start, there aren't any price hikes once you suddenly become qualified to pay

for that. And I like that because I like being paid for what you're worth. I mean, if we're asking for a 10% pay rise, it's going to be for you, Jess, not for the ATO, right? The second thing is, again, makes your business look more legit when you charge for GST. And when you don't, it's very clear that you're making less than $75,000. I mean, maybe not everyone looks at it The same way I do, but I definitely do. You're extra nosy. And if you're working for any other big businesses, I don't mean to be rude here, but like, let's say you're a freelancer.

Let's say you're Jessica Ricci, right? You are Jessica and you make content, beautiful content at that for other brands. Yeah. They see all of the influencers invoices. Yeah. So if one's coming through with GST and one's not coming through with GST, if you're new in PR, you might go, oh, we just got her invoice for Jess. She didn't charge GST.

What's that mean? Yeah. They're going to ask. They're going to know. everyone's going to know yeah and i'm not saying that that's shameful no like it's not a bad thing at all but you need to understand if that's something you want considered or not and then three it's done well ahead of time so you don't actually have to worry about accidentally missing it or paying in arrears or you know upsetting the tax office which is my favorite thing not to do

yeah a hard agree from me there i think set it up early i think that's the premise of this whole episode really isn't it like let's get your ducks in a row now so that nobody's having a meltdown come next year. Exactly. We don't have meltdowns and getting your ducks in a row is not just smart when it comes to, I guess, business and getting the structure right. It's also so essential from my perspective because it means that you believe in your business. So if you're just like, oh no, I'll just do it through my personal account. It's not worth it. It's not going to grow. Be like, sorry, that's not the mentality that we have when we're starting our own small business. We don't need to take over the world with our small businesses. Like our small businesses

could just be that extra 10k a year so you get a bougie family holiday once a year and like that's why we're doing it yeah but we are proud of that we actually believe in that and we you know have conviction in that because 10 grand this year might be 12 grand next year and like things just creep up and that's great but the structure is what's going to crucify you if you don't get it wrong yeah and that's where most people do go wrong yeah for sure all right we've given you a lot to think about talking about GST and ABNs and all of those different options. So we're going to let that marinate in your brain for a little bit. Marinate. Marinate away. And then we're going to head to a quick break. And when we come back, we're going to talk about claiming and tax in

small business. I love these episodes so much. Don't go anywhere. Welcome back, everybody. We've gone over how to set up your business, get it ready for tax time. And now I want to talk about what actually does happen at tax time because it seems like a very... My birthday. That's very true. Gin 30. It's a good time to work in finance. I know. It's amazing. Is tax time a little bit different if you're registered as a sole trader versus as a company? Yeah. So it's a good question and they are actually very different to one another, which might help you decide whether to register as a sole trader or as a business. So sit down. I've written a list. Are you ready? I'm ready. As a sole trader, your profits will be included on your individual tax return. So you

will be paying tax at your personal marginal tax rate. Yeah, which is what we're talking about before. Yeah. So obviously that 32 and a half percent is just standard, but it goes up much higher. And maybe you're in a situation where you're like, oh, well, actually another, you know, 10 grand actually pushes me over a threshold. We need to think about that. Yes. It's an extension of you and your personal financial affairs and it actually makes tax time really easy. So like back on the flip side, me trying to do a jump scare, I'm also like, it's really easy to do your tax when it comes to being a sole trader. If you're registered as a business, you will have to do the tax for your business and your

own finances because they're not bundled together like a sole trader. And that is not only more complex, but can be a little bit more costly. So you might be paying, I don't know, Jess, what do you pay for your tax return each year? maybe like 250 bucks nowadays. I reckon it's pretty standard. You'll be paying maybe four or $500 for a tax return done for your business in addition to your individual tax return. So just keep that in mind. Big businesses pay 30% tax rate on profits, Jess. Oh, just flat? Just flat. There you go. Very, very sexy. Profit means the money you've made after pay deductions, etc. are, not just the gross income that you look at that you go, well, that's gross. I could have

made that. So it's not, you know, if you had $10,000 coming in the door as a business, they don't go, all right, well, you owe us 30% of that. And this is why tax time can be a little bit complicated because you go through that and go, okay, well, I paid Jessica. I also, you know, paid rent for my facility. I also had these printing costs for my business. And you have all these costs. The deductions. That are deductions. And then at the end of that is your profit. And that's what you pay tax on. Okay. That's pretty good. So look, it's pretty good. But as we said, big business pays 30%. You know, that's pretty sexy, Jess, because obviously the average marginal tax rate is 32 and a half cents. It's two and a half percent better off.

That's pretty good to me. Well, just doing some basic maths, not advice again. small business tax, Jess, reduced 25%. Okay. So we're getting closer to that. Get to my number from earlier. That mistake you made is much closer. That's pretty good. Much more palatable. Throughout the year, you're obviously, as I said, at the first half of this episode, you're going to be required to complete what's called a business activity statement or a BAS, as you call it in the industry, which is quarterly. And I've written down, it can help at tax time. It doesn't. It definitely does help at tax time. Not can, it does. It makes me feel so on top of it. I don't like having to

talk about tax quarterly, but I promise everything is easier when it's broken down into smaller chunks. Yeah. So it kind of becomes a little bit sexier when you start talking about the cash rate, right, Jessica? Because, you know, small business is taxed at a reduced rate of 25%. You go, hold on. So 25%, what if I was, you know, earning this $70,000 in addition to my normal income and have had a really good tax year, that would actually push you as an individual, like if you're working as a sole trader, it is included on your individual tax return, which might push you to the highest marginal tax rate in Australia, which is 45% tax, Jess. And that means you would earn over $180,000, which if you are an individual who has a PAYG job and a side hustle, it's not

that hard to get to that number. Yeah, totally plausible. Totally plausible. Like we're not talking about pipe dreams and oh my gosh, I wonder, like $180,000 for a PAYG job, you go, wow, that's a lot of money. But if you're doing two jobs at one time, you kind of go, all right, well, I might earn, you know, $110,000, $120,000 in my normal job. And then I might, you know, earn another $70,000. Well, now you're at the highest marginal tax rate. $45,000. We need, yeah, 45%. You're not on tax. You're on practical advice. I'll be on the math side of things. I like this. This is a good setup. Keep it that way. But I think it's really important to, I guess, look at that because 25% bit sexier than 45%. There's also obviously going

to be things about distributing that income. So we'll talk about that later, but they are very different. Okay. Before the break, I gave the example of someone who's looking at the sole trader model, but they could maybe decide to go the other way and go for a business instead. Are there any advantages around tax time to either model that may help people decide which category would be the best option for them? So the answer is yes. First thing first, as a sole trader, tax is just easier and faster to do. It's the same way you've been doing tax always. It's just another line item, pop it in and it spits it out. It's very straightforward. The ATO now has their e-tax system. Super, super easy, especially as a business owner. I feel like

once you start running a business, you get like a little bit overwhelmed. You're like, oh my gosh, what's tax time going to be? It's going to be crazy. If you've got all your receipts, if you've been keeping track of your income, it's a cinch, I promise. However, if you register as a business, you're taxed on the profit, meaning that before tax time, you could actually look at business claims to help you reduce your profit and pay less tax. And you can even pay yourself out of that. So for example, you might've made like 60 grand for the year, and then you bought a $2,000 laptop and decided to pay yourself $50,000. That's actually $52,000 in expenses. So you're really only claiming an $8,000 profit, Jess, and you'll be taxed from that instead of

the full $60,000, which I think a lot of people assume. Yeah. Okay. Right. So with that said, if you are a service-based business, it might actually also be advantageous to be a sole trader. However, if you need to buy product or materials to make your business run, like you probably have a heap of outgoing costs, whereas at tax time, it would be better to just have registered as a business because like you're claiming them in arrears, if that makes sense. Yeah, as a sole trader. So it's just a little bit more complex. Yeah, that's interesting thinking about claiming something back under tax because I feel like

even if you're not a business owner, at tax time, everyone's always saying, what can I claim? Like, how can I maximize the money that I've earned? Because no one likes paying tax. No one likes paying tax. But I also, this is such a spicy opinion. I'm always like, why are we here justifying purchases for things that your business might not need

just so you can kind of get a discount on them? Like, yes, you're getting a tax benefit, but it doesn't make the item free. Yes. You don't need a new car or a new laptop just because tax time is coming. And, yeah, like if you genuinely need your new laptop, Jess. It's a good time to do it. It's a good time to do it.

Do you know what? There's usually sales on. Like Officeworks is always like, oh, look at our laptops coming up to the end of financial year. Sexy. Very nice. if you already need one. Because the claiming process happens really quickly. So right, like let's say you're like, oh, I actually do need a laptop. It's June. You buy it on the 15th

of June. You can claim that at the 30 June tax time. But like if you bought it in December last year, it's still claimable, Jess. Yeah. You're just trying to like stuff it in that year. And I just go, this is so silly. You are making purchases that you didn't need to make. So what can we claim then is my question. Oh my gosh. There are so many things that you could claim and I could go on and on and on about it because it totally depends on what industry you're in. You're in the adult industry, Jess. You could claim Loop. There you go. Are you in gardening and farming? Great. Do you know you can claim your dog and garden gnomes? Oh. Like wild. So let's give you some more practical advice because I don't think either of those things really help

you. No. But please don't guess what you can claim. Don't just go, oh, I assume I'd be able to claim that because you don't want to do this incorrectly because if the taxman audits you and it's incorrect, not only are they going to ask you for the money, Jess, they're going to fine you. That's not good. As someone who's been audited as well, like they dot their I's and they cross their T's. Yeah. And it's kind of like not innocent until proven guilty with the ATO. They're like, you're guilty until you prove that you're innocent. Yeah. And with you, when you got audited. You wouldn't have your receipts. You would have had your receipts, thankfully. But like, imagine if you were me. Yeah. Stressful. Thankfully, I have Jess now,

so we're okay. But historically, I'm like, I don't have that receipt. Yeah. But I would advise getting an accountant who specializes in the field that your business is in, who's actually going to know what you can and can't claim. Now, Jess, you used to do your tax yourself and I bullied you because I am the world's biggest bully. And I said, you have to go to an accountant. Yes. Was that a good decision? Life-changing decision. Why? I think at first I was always like, oh, I can do my own tax myself. Why would I pay someone else to do it? Like you said, 250 bucks, you know, a decent amount of money. Like if I can do it myself, why do it? But for me, the amount of things that I just didn't know that I could claim as a sole trader.

And I obviously sent you to someone who knew what they were doing in your space. And I remember you walking away being like, oh, and she said I could claim this. And I was like, well, yeah, of course you can. Because you aren't the tax person and like I'm a money person. So I kind of knew some of those things. Yeah. Like invest the money one year. And you know what?

If it doesn't work out, you get to claim it on next year's tax. It's a win. And then you don't have to do it again. But nine times out of 10, I'd say, an accountant puts you in a way better position than you could yourself. Yeah. And if you need a recommendation, we're happy to pass you along to someone. So slide into our DMs.

Yeah, there's a page on our website. Hit up that and we can match you up with somebody. I mean, we'll match you up with someone real good, but I hate to tell you this, Jess's accountant's not taking on new clients. Unlucky. Sorry. Also, another hot tip, Jess, is have a look on the ATO website. I know you probably don't frequent it.

You're probably not like waking up in the morning being like, I'm just going to have a little cup of joe and I'm going to sit down on my laptop and look at the ATO website. That's what I do though. Be more like VD. I like it. But look at the ATO website because they have a whole section around what you can claim and what you can't claim. And it changes depending on the business that you run. And they also post lots of articles of like, I mean, they don't market it this way. I'm just trying to be sexy marketing for the ATO. But like they have some horror stories on there too of like this person tried to claim this and they got in trouble in this way.

Yeah. I just love a pervy story. Me too. So kind of helpful. They have a really great forum too where it's manned by ATO staff and you can actually head in there and post your question or be like, oh, theoretically if I did this and did that. Hypothetically.

Yeah, like they can't provide you personal advice but you can kind of ask generalised questions and it's coming straight from the source. You know that it's correct. Exactly. Because sometimes those click-baity articles that you see floating around at tax time. Yeah, like, oh, my gosh, did you know you can claim your Prada handbag?

I wouldn't take those as sound advice. We're not going to take those legitimately. Yeah. I also think it's really important to check the ATO website because each year in the lead-up to tax time, the ATO put out, like, a big statement. And the statement usually explains what they're targeting this year. Yeah. Let's use a recent example. So I think it was this year they came out and said, all right, we're changing the work from

home claiming rules because during COVID, we gave you guys a whole heap of concessions on what you could and couldn't claim from home. And obviously we're a little bit more lenient with that because lots of people were working from home. Now we're cracking down on that. If you're claiming work from home, you're going to need to back it up because we're probably going to audit a heap of people in this situation. So it's nice to just know where they're tightening up, Not so that you can protect yourself even more because you should be doing the right thing in the first place, but it's just pervy. It's good to keep a finger on the pulse and know where you stand.

Good reminder. And also things that you could claim last year might not be claimable this year. So there might have been certain concessions or certain leniencies that they're like, oh, well, Jess, we're going through COVID. So you can claim this this year and then they can't next year. So for example, there's an uproar in the She's On The Money community this year because the instant asset write-off amount is actually decreasing next financial year. it has now decreased this year, whereas historically you could claim a lot more on

that. So you just want to have your finger on the pulse because if you're going to make decisions financially, let's make sure that you're not making them based on rules that don't apply to you anymore. Yeah. So don't guess tax claims. We don't want to be dancing with the devil or in this case, the taxman. Excellent advice. Oh, hold on. One more thing. Obviously, I was saying to you earlier like, oh yeah, I registered for GST earlier. One of the additional benefits of registering for GST is that you're able to claim it back. So if you're not registered for GST, Jess, you're not able to claim back the GST on any of your expenses or materials that you purchased

to sell. Okay. Interesting. Just good to know because you might go, oh, I claim that back at tax time because you've heard that GST is claimable. Yeah, it's claimable if you're paying it. So it's like a two-way street. If you're not on the two-way street, you don't just get to claim it when you're not paying it. That makes total sense. Is there anything you want to leave us with about bank accounts before we head away? You're going to let me talk about bank accounts in this episode too? Your favourite topic.

Oh, this is my favourite episode. We don't even need the She's On The Money podcast as a whole anymore. We just need Victoria talking about banking systems. So yes, obviously always open a new bank account for your business, whether it is big or whether it is small, because it's going to help you keep track of all of that money that is coming in and going out. And I promise you are going to want to keep track of that. If you're registered for GST, because obviously I can't give personal advice,

you could potentially think about opening a separate bank account for that money to go into. I do that personally, where you're not going to spend it. I do the same for tax. So while we said earlier, we withhold 30% tax. So like my business pays 30% tax, say $10,000 payment comes in. I automatically put $3,000 into my tax account. And I do that because it makes me feel so comfortable. I go immediately, if we pretend this was profit, I'm going to be paying three grand tax on this at a minimum. And then I take

my GST and pop that in a separate account and I know that I'm clean. I then use the money that is left over. So the $7,000 left over, I leave that in my business account and that's what pays my bills. That's what keeps the light on. Coming to tax time, I know that I have the money set aside to pay tax. I pay tax from that. My business accountant goes through everything at tax time and then lets me know at the end of the financial year what my true profit is. And I like it that way. And it's honestly, I would say a privilege to act that way because I'm technically putting aside a full 30% irrespective of what my costs are. Because as you guys know, I have staff to pay. I have rent to pay. I have overheads. Like, do you know how many subscriptions I pay for like

Photoshop and like podcasting apps. I cannot. It's expensive. Website management fees. Like we'll go through all of these hidden costs of business at some point. But like, I did not realize how expensive it is. Side note, Jessica, to have an EDM. Oh my God. So to have an email marketing platform, you go, oh, just sign up for MailChimp. And that's what I did when I started She's On The Money. Just went straight to MailChimp. I was like, slay, it's free. We love that. Then you get to a certain amount of subscribers and they're like, haha, it's pay to play. And you're like, oh, okay, no, that's fine. I've got some subscribers I'll pay. And then you get more subscribers. Anyway, back to the point, separate accounts, because one,

I like clarity, but two, putting aside that money means that I sleep really well at night, knowing that there's money in the account to pay tax. There's money in my other account to pay for my staff and my team. And then at the end of the day, we get to talk about profit once tax time comes and goes. So I think it's really important to be structured properly. And it might seem like a lot for now because you're like me. I like have literally just started my business. I earn like $4. You've got rocks in your head. Like I cannot believe it. I just went to sign up for this new business banking account. It's going to cost me $10. Like are you joking? $10 and I haven't even made a profit yet. I promise that investment is worth it. And getting it right at the start is

going to save you so many headaches and also any questions from the taxman later. Yeah. And on a smaller scale, having that separate account, if you're doing all of your spending from that account as well, it makes it really handy at tax time. If you're someone who maybe does lose their receipts or forgets what they have and what they could claim, it's almost like an itemized list of everything that you've purchased. So it's super duper handy. So easy. Your accountant and your bookkeeper at some point when you have both of those are going to love that. You're going to love that more because you're not filtering through. Oh no, that was Uber Eats. Oh, that was me. Oh, that was, you know, me as sports girl. Oh, actually that's a business expense. Start that

one. Like that's not helpful. That is not an effective use of your time. And as a small business owner, you only have so much time. We need to make the most of it. And having a clean banking system is going to make it easier. And Jess, onto that point of like, if you're someone who loses your receipts, like Victoria Devine is, you're going to start an album on your phone and take a photo of every receipt that comes in so that you know that it's you know stored somewhere yeah that helps me a lot I mean the ATO app actually enables you to upload it directly but like I don't know if I want to upload it right now like my accountant might go oh V that you know work lunch only some of its claim I just I like having it separately so I can provide it

all to my accountant yeah separate but then also you can actually upload your receipts directly to the ATO portal throughout the year to keep track of them. Huge. That's also free. There you go. I feel like we've covered a lot today. I feel like we've covered too much. That was a big episode.

I am really sorry to all of the people at the start of this episode that I might have got hyped up when I said, this is a really sexy topic because it wasn't. You may be lying a little bit. But I also think being empowered in business, being on top of your numbers, that is arguably very sexy. I completely agree. And now you know how to set yourselves up for tax time without getting fined, without getting in legal trouble and hopefully without getting a headache. And so your business grows.

Exactly right. We love that. All right. Well, have a really good week, guys. We'll see you next month for a Business Bible episode. But as always, the conversation is going to continue over on our Facebook group, The Business Bible, not She's On The Money. We're going to keep that one separate because not everyone cares about business. That's okay. And that's all right. But we found our niche and we love them hard. Yes, we do. You're our people. See you next time, guys. Bye. the advice shared on she's on the money is general in nature and does not consider your individual circumstances she's on the money exists purely for educational purposes and should not be relied upon to make an investment or financial decision if you do choose to buy

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