Class Notes (839,067)
Australia (1,845)
Accountancy (152)
AYB205 (10)
All (10)
Lecture

AYB205 - Week 1 and 2- Sole Traders

5 Pages
107 Views

Department
Accountancy
Course Code
AYB205
Professor
All

This preview shows pages 1 and half of page 2. Sign up to view the full 5 pages of the document.
Description
AYB205 – LAW OF BUSINESS ENTITIES LECTURE 1: SOLE TRADERSHIP LAW Sole Trader  A sole trader is a person who carries on business alone, without the use of a company structure and without partners.  A sole trader has complete control including ownership of all profits, business assets and personal responsibility for all debts. Why a Sole Trader?  Tax Considerations o Income taxed at personal tax rates; o Income losses offset against other income; o Operating losses carried forward indefinitely; o CGT small business concessions; o Income splitting for tax offsets not allowed.  Asset Protection o Personally liable and all unencumbered assets are exposed – UNLIMITED LIABILITY  Business Risk o Capital investment o Insurability o Revenue Stream (cash or debtor) Advantages Disadvantages  Simple and inexpensive to setup  Unlimited personal liability and operate  Health and Lifestyle  Full operational control  Limited tax concessions  No profit sharing  Limited costs concessions, e.g.  Privacy of operations vehicle ownership costs  Relatively simple to sell business  Limited growth potential  Minimal winding-up costs  Difficulty raising capital  Some tax advantages Small Business  Broadly, a small business will have: Defined differentially in different acts o Assets ≤ $20M; o Annual Income (Y) ≤ $2M p.a. o Employees ≤ 20 full-time person equivalence All sole traderships are small businesses but not all small businesses are sole traders Carrying on a Business  ‘Carrying on business’ includes establishing a place of business and soliciting or procuring any order from a person in the State. Business Names Act 1962 (Qld) s3 o For the purposes of this Act a person shall not be regarded as carrying on business within the State for the reason only that within the State the person —  Is or becomes a party to any action or suit or any administrative or arbitration proceeding, or effects settlement of an action, suit or proceeding or of any claim or dispute; or  Maintains an account at a financial institution; or  Effects any sale through an independent contractor; or  Creates evidence of any debt or creates a charge on real or personal property; or  Secures or collects any of the person’s debts or enforces the person’s rights in regard to any securities relating to such debts; or  Conducts an isolated transaction that is completed within a period of 31 days, but not being 1 of a number of similar transactions repeated from time to time; or  Invests any of the person’s funds or holds any property. Working Out If You Are Operating A Business (ATO)  If you are in business: o The money you earn from your business activities is generally assessable income; o You can generally claim a deduction for the expenses you incur in earning that income; o You may be able to offset any loss you incur against other income you earn or carry the loss forward to offset future income. o If your activities are a hobby, the above points do not apply. Capitalisation/Funding  Usually small capital base to start business, sourced from: o Home Mortgage o Bank Finance o Overdraft o Business/Personal Loan o Credit Cards and Credit Lines o Angel Investor, e.g. family, friends, business associates o Dependant on: o Personal asset base to secure credit; o Demonstrated ability to service debt; and o Creditworthiness Start-Up Administration  The following administrative matters need to be undertaken by all business types: o Register for an Australian Business Number (ABN) o Register for a Tax File Number (TFN) (will invariably already have one) o Register for GST – payment can be made through ATO Business Portal  Business Activity Statements (BAS) can be submitted monthly, quarterly or annually depending on turnover and PAYG withholding values o Non-Compulsory:  Superannuation for Associated Persons RUNNING A SOLE TRADERSHIP Managerial/Regulatory Issues  All businesses must deal with the following at some point in their lifecycle, but can be particularly onerous for Sole Traderships: o Adherence to a myriad of business law and regulation; o Adherence to a blizzard of zoning, town planning and environmental regulations, including adherence to fire regulations, asbestos management and other cleanliness and safety matters, plus licensing, permits and council by-laws. o Asset and Income Protection Insurance. Capital Gains Tax (Div 152)  Small Business CGT Concessions Basic Conditions Tests o Maximum Net Asset Value Test: the entity must be a small business entity or a partner in a partnership that is a small business entity, or the net value of assets that the entity and related entities own must not exceed $6,000,000; o Active Asset Test: the divested asset must be an active asset; o Controlling Individual Test: essentially, 90% of the controlling ownership of the asset must be a small business.  Small Business CGT Concessions o 15-year Asset Exemption –  Assets owned for >15 years exempt from CGT on realisation if owner is >55yo and retiring/incapacitated. o 50% Active Asset Reduction  Applies to all small businesses who qualify. o Retirement Exemption  Where owner is <55yo and rolls capital gain over into superannuation. o Asset Rollover Concession  Where an asset is sold at a profit but the funds are reinvested within a certain time period in another asset. Other Tax Issues  Deductions o Motor vehicles, travel, capital allowances, operating losses, employee-related, etc.  Substantiation of Expenses/Deductions o Record keeping and document management – an absolute must for all business managers.  The ATO provides extensive assistance, support and technology for record keeping. Personal Services Income  The PSI rules were essentially a measure designed to stop people claiming business benefits when they are not really running a business.  Income generated in the following ways is not PSI: o By selling or supplying goods. Income from selling or supplying goods, such as retailing, wholesaling or manufacturing, is generally not PSI as the income is not mainly a reward for your skills, knowledge, experience or efforts. o Using an income-producing asset. Income from an income-producing asset, such as a bulldozer or printing press, is generally not PSI as the majority of the income is generated by the asset. o Granting a right to use property. Income from granting a right to use property, such as copyright to a computer program, is generally not PSI as the majority of the income is generated from the right to use the property. o Through a business structure. Income from a business structure, such as a large firm, is generally not PSI as the majority of the income is generated by the significant assets, many employees or contractors, sizable operations or goodwill of the business s
More Less
Unlock Document

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit