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Loss on Second Job as a Sole Trader

I'm new

Views 12203

Replies 6

I've taken up a second job providing private musical instrument tuition in late Feb 2017. To do so I had some set up costs, which turned out to be larger than the amount I earned, which was expected as I started out. So a few questions -

- If I purchased an asset over $300.00 (under $20K), as a sole trader/individual, can the Small Business Instant Asset Write-off apply to that asset?

- As a follow up, if so can I claim the full amount of the deductions (including the above asset as well as some reference materials) even though I didn't earn that total in the 16/17 FY (although I have now, but the first few months up to June 30 were very slow), essentially reducing the taxable income in my main job (which is totally unrelated), or can I only claim deductions for that role up to what I earnt as a sole trader 

- Is this Personal Services Income?

 

Many thanks.

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Former Community Support

Replies 4

Hi @jaffar72,

 

Great questions! @Tracey74's got you covered for info on PSI and general small business deductions, but we just wanted to clarify a couple of things:

  • Firstly - is your second job an enterprise or a hobby? There's no single factor that determines whether you're in business, so it's worth working through our checklist to make sure you're considered a sole trader.
  • If you're a sole trader, you can generally offset your business losses against other income (like salary and wages), though it's important to note that there are some deductions you can't use to create or increase a business loss.
  • The 'instant asset write off' is a form of depreciation where assets costing less than the instant asset write-off threshold (currently $20,000) are written off in the year they are bought and used, or installed ready-for-use.

    You can only claim a deduction for any part of an asset that's used for business purposes - subtract any private use proportion. If you later sell or dispose of an asset for which you claimed an instant asset write-off, you include the taxable purpose proportion of the amount you received for the asset in your assessable income.

  • As @Tracey74 mentioned, there are some specific rules about Personal Services Income (PSI) and it's important to make sure you understand how they apply to your business. If you're not sure whether the rules apply to you, contact our early engagement team and ask for a call back or follow up email to discuss how tax law applies to your situation.

Finally, we have lots of great information for people getting started with a new business. Check out our page on supporting small business to find tools and resources to help you manage your tax and super obligations.

 

Hope that helps! Thanks.

 

6 REPLIES 6

Devotee

Replies 5

Hi @jaffar72

 

You can claim a deduction for most expenses you incur in running your business as long as they are directly related to earning your assessable income.

You claim the deductions below (list) in the annual tax return for your business or, if you're a sole trader, in your personal tax return.

I have also listed some of the common types of deductions you can claim:


Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise.

You may want to use our Personal services income decision tool to work out whether you've earned PSI, and if the PSI rules apply to that income.

There is a  video explaining personal services income (PSI). You can find a more accessible version of this video on  atoTV

If the PSI rules do apply to your income, this will affect where you report your income and what deductions you can claim. I also recommend for you to look at our PSI page as it has further information about PSI.

Please note this is my personal view; I’m an ATO employee who chooses to help out here in my own time

Most helpful response

Former Community Support

Replies 4

Hi @jaffar72,

 

Great questions! @Tracey74's got you covered for info on PSI and general small business deductions, but we just wanted to clarify a couple of things:

  • Firstly - is your second job an enterprise or a hobby? There's no single factor that determines whether you're in business, so it's worth working through our checklist to make sure you're considered a sole trader.
  • If you're a sole trader, you can generally offset your business losses against other income (like salary and wages), though it's important to note that there are some deductions you can't use to create or increase a business loss.
  • The 'instant asset write off' is a form of depreciation where assets costing less than the instant asset write-off threshold (currently $20,000) are written off in the year they are bought and used, or installed ready-for-use.

    You can only claim a deduction for any part of an asset that's used for business purposes - subtract any private use proportion. If you later sell or dispose of an asset for which you claimed an instant asset write-off, you include the taxable purpose proportion of the amount you received for the asset in your assessable income.

  • As @Tracey74 mentioned, there are some specific rules about Personal Services Income (PSI) and it's important to make sure you understand how they apply to your business. If you're not sure whether the rules apply to you, contact our early engagement team and ask for a call back or follow up email to discuss how tax law applies to your situation.

Finally, we have lots of great information for people getting started with a new business. Check out our page on supporting small business to find tools and resources to help you manage your tax and super obligations.

 

Hope that helps! Thanks.

 

Newbie

Replies 3

I am in a similar situation 

my previous employer has closed operations and I believe there is a sizeable market being left untapped

I have started working elsewhere for a stable PAYG income, but am looking at starting own business as after hours and weekend initially.

can I take advantage of instant asset write off while it is available, and claim against income tax paid this year, as most business income will take place in following years

ATO Community Support

Replies 2

Hi @Tyred

 

Welcome into our community.

 

I would suggest reviewing Instant asset write off for eligible businesses and the COVID19 link as well for more details.

 

As you may of already noted from the AmandaE post above  "If you're a sole trader, you can generally offset your business losses against other income (like salary and wages), though it's important to note that there are some deductions you can't use to create or increase a business loss."

Hopefully that helps, however you may wish to have a discussion with your accountant before proceeding to make sure the desired outcome you are seeking is fully applicable to your structure.

 

Best wishes

MarkA

Newbie

Replies 1

I have started process of purchasing a van for my new business, and felt a chattel mortgage is my best solution. However the finance person at dealership tells me they need to see proof of EXISTING earnings from my BUSINESS to do this, and presently will only offer me a CONSUMER LOAN, based on income from my primary job. Can I still claim gst from purchase? What about interest payments and Instant Asset WriteOff. Also I am using vehicle during primary PAYG job for business use. Does this get treated same as business use for my new business? 
I am worried I may be getting this wrong

ATO Community Support

Replies 0

Hi @Tyred

 

Try our Starting a business guide It offers step by step guidance for building a successful business.GST and motor vehicles

will assist in understanding what the eligibility is to claim GST on your vehicle purchase. Here at ATO Community we can offer general advice but it will not necessarily be tailored to your true circumstances. A good accountant or tax agent may be what you want if your not assured after reviewing our online guidance.

 

All the best 

MarkATO