I’ve started a small business as a sole trader and it’s begun to generate profit so I was wondering exactly how tax works when I want to pay myself/withdraw money from my business?
I understand that profits from your sole trader business are counted towards your individual income. However, what happens when you want to use this money generated through your business for personal use like holidays, entertainment and eating out?
From what I originally gathered, I thought that even if you have a seperate business bank account that the business profits are paid into and you move money from this business account to a personal account as a way of 'paying yourself' and then spend it on personal things like holidays, entertainment and eating out, this actually isn't really 'paying yourself' and is more just moving money between accounts because all the money you make (either through salary and/or your own business) is just counted as personal income anyway that you can spend how you like.
HOWEVER, I came across this page from Xero which confused me a bit because it says that "personal withdrawals are counted as profit and are taxed". So I'm not sure if this is true, I've just misunderstood because it's worded badly or if it doesn't apply to how taxes work in Australia.
So essentially after reading this it made me wonder if this money I 'pay myself' for holidays, entertainment and eating out will actually be counted as profit and I will be taxed extra for this?
So hypothetically, let’s say I make $100k from a full-time job and my small business makes $70k in revenue and has $20k in expenses leaving $50k profit. I am guessing that this will mean I will be taxed as if I had made $150k ($100k salary + $50k business profit).
However, what if I was to pay myself $25k from my small business’ profit? Would I be taxed as if I had made $175k ($100k salary + $50k business profit + $25k income from business) or just taxed as if I had made $150k?
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