Business tax return: Adding other income sources
You may earn income from multiple sources as a sole trader and ABN holder. In this blog, we look at how to include other income sources in your business tax return and why it's essential. We discuss common types of income often overlooked, such as rental income and capital gains, as well as tips for keeping accurate records and staying compliant with tax laws. By understanding how to report all your income correctly, you can ensure that your business complies with tax laws to avoid any problems later down the road.
It's prevalent for sole traders to have multiple sources of income. In addition to the income you derive from your primary business, you might have a side hustle, rental properties or even government grants that add to the money you earn. It's essential to understand how to report all your income sources on your tax return, as failure to do it correctly can result in an audit, penalties and fines.
Common Types of ABN Income Sources
When lodging a tax return for your sole trader ABN, there are several types of other income that you must include in addition to your business income. Common examples include:
- Rental income: If you receive rental payments from properties you own, you will need to include this income on your tax return.
- Interest and dividends: If you receive interest or dividends from investments, this will need to be declared as income.
- Capital gains: If you sell any assets, such as property or shares, you will need to add any capital gains to your return.
- Government payments: If you receive government payments such as startup grants, you must declare this income.
- Foreign income: You will need to calculate and include foreign income, such as pensions or annuities.
- Child Support payments: If you receive child support payments, you must declare this income on your tax return.
To file your sole trader tax return correctly, you must keep accurate records and include all income in your tax return. Common approaches that small business owners take to track their income include:
- Invoices: Tax invoices provided by your real estate agent for rental income.
- Bank Statements: Bank transactions can record income and its source.
- Agreements: The sale of shares will usually include a sale agreement you can keep.
- Emails: Government grants may be issued via email and have a PDF summarising the amount.
How to Lodge Your Tax Return
Now that you know the other sources of income and the essential documents to keep, you will be better prepared for tax time. To lodge your sole trader ABN tax return, you can follow these steps:
- Identify your income: Review your records and identify your income from your ABN. This will include all revenue generated from your business activities and other income sources.
- Determine your deductions: Review your records and identify any deductions you are entitled to claim, such as business-related expenses, home office expenses, and depreciation of assets.
- Complete the tax return form: Log in to the ATO's myTax portal and complete the tax return form. You will need to provide information about your income, deductions, and other relevant information, such as your ABN and tax file number.
- Lodge the tax return: Once you have completed the form, lodge it with the ATO. You can do this online through the myTax portal or by mailing a paper copy to the ATO.
- Wait for the assessment: After you have lodged your tax return, the ATO will assess it and let you know if you owe any tax or are entitled to a refund.
If you prefer to focus on your business but still want to ensure you comply with tax rules, then a tool like Thriday can be a much easier way to track all your income in one place. With Thriday, you can open multiple business bank accounts*, which can be allotted to specific themes. For example, you may have an account for your business, a separate bank account* for rental income and one for government grants. This makes it super easy to track everything.
Once you set up your accounts, Thriday tracks all your income and does your tax calculations in real-time so you can see where you stand as a business. You can even see how much tax you will likely owe or be refunded by the ATO.
For other income that you earn outside of money in your Thriday bank account*, you can easily add these balances for accurate record keeping. For example, if you made $2,300 in rental income and were paid into a non-Thriday personal bank account, you can manually add a 'balance’ of $2,300 as income. Thriday will automatically update the books for you.
Thriday is an all-in-one financial management platform that business owners designed for business owners. Thriday takes the pain away from managing your finances and eliminates the time small business owners waste on admin.
Other Income Sources FAQs
What other income sources may I need to add to my business tax return?
Other income sources you may need to add to your business tax return include income from rental properties, interest income, capital gains, and other business ventures.
Why must I add other income sources to my business tax return?
You must add other income sources to your business tax return because the Australian Taxation Office (ATO) requires you to report all income earned during the financial year. Failure to report all income can result in penalties and interest charges.
How do I report other income sources on my business tax return?
You report other income sources on your business tax return by including them in the appropriate section of the return. For example, rental income would be reported on the rental schedule, while capital gains would be reported on the capital gains schedule.
What documentation do I need to support other income sources on my business tax return?
You may need documentation to support other income sources on your business tax return, such as rental statements, dividend statements, or share trading statements.
What are the tax implications of adding other income sources to my business tax return?
The tax implications of adding other income sources to your business tax return will depend on the nature and amount of the income earned. You may be subject to different tax rates or deductions based on the type of income made.
Can I use any tax planning strategies to reduce the tax impact of other income sources?
Yes, there are tax planning strategies that can be used to reduce the tax impact of other income sources, such as offsetting losses against gains, making deductible superannuation contributions, or deferring income to a future financial year.
When lodging a tax return for your sole trader ABN you must register other income such as rental income, interest and dividends, capital gains, government payments, foreign income, and child support payments. It's important to note that it's a good practice to have separate bank accounts and keep accurate records throughout the year; this way, you can easily add your ABN income to your tax return and stay compliant with Australian taxation laws.