May 2025 Newsletter

Please click on the following link to view this month's newsletter for May 2025. We would like to highlight the following articles:-

Sole trader or company: what are the tax differences?

Choosing the right business structure is critical, particularly when considering tax and compliance obligations. Whether you're starting a new venture or evaluating a switch from sole trader to company, understanding the key differences can help inform your decision.

Tax Reporting Requirements

Sole Traders: Report business income and expenses via the “Business and professional items” schedule within their individual tax return.
Companies: Must lodge a separate company tax return and comply with additional regulatory obligations under ASIC, including accurate record-keeping, annual reviews, and the ability to produce audited financial statements if required.

Tax Rates and Thresholds

Sole Traders benefit from the individual tax-free threshold of $18,200, with progressive tax rates applying thereafter.
Companies do not receive a tax-free threshold. The standard company tax rate is 30%, although a lower rate of 25% may apply to base rate entities (companies with aggregated turnover below $50 million and no more than 80% of income being passive).

Other Tax Considerations

GST Registration: Required for both structures if turnover is $75,000 or more, or if operating in ride-sourcing, taxi, or limousine services.
Payroll Tax: May be payable depending on gross wages and the relevant state or territory threshold.
Capital Gains Tax (CGT): Applies to both; however, sole traders may access CGT concessions such as the 50% discount and indexation methods (some CGT reliefs are more limited for companies).
Fringe Benefits Tax (FBT): Payable if employees receive non-cash benefits under either structure.

What payday super could mean for you

The Federal Government has proposed a significant reform to superannuation payment timing, known as “payday super”, aimed at improving compliance and strengthening retirement savings for Australian workers.

Currently, employers are required to pay super contributions on a quarterly basis. Under the proposed changes, employers will be required to pay super within seven calendar days of each payday, beginning 1 July 2026.

Key Changes for Employers:

Increased Payment Frequency: Super contributions must align with payroll cycles, whether weekly, fortnightly, or monthly.
New Definitions Introduced: “Qualifying earnings” (QE) will replace “ordinary time earnings” for determining super contribution obligations and calculating shortfall charges.
Closure of ATO’s SBSCH: The ATO’s Small Business Superannuation Clearing House will be phased out, requiring employers to transition to compliant payroll and clearing solutions.
Updated Superannuation Guarantee Charge (SGC): Will include additional components such as notional earnings (interest on late payments), administrative penalties, and extra loadings for failure to comply with employee fund choice requirements.
Tax Deductibility: Both on-time and late super payments will remain tax-deductible, offering some financial relief in the event of delayed contributions.

Implications for Employees:

Faster Accrual of Super: More frequent payments allow superannuation to benefit from compound growth sooner.
Greater Transparency: Employees can track contributions in line with pay cycles, improving oversight of employer compliance.
Faster Processing: Super funds will be required to allocate contributions within three business days, down from the current 20.

The draft legislation was open for public consultation until 11 April 2025, and its finalisation is expected to be influenced by the outcome of the 3 May 2025 federal election.

Please do not hesitate to contact us if you have any queries in relation to your tax and accounting matters.