SELF-ASSESSMENT
Australia’s income tax system works on the self-assessment
principle. This means we initially accept that the information
you provide is accurate and work out the tax you are liable to
pay on this basis. However, we may ask you to show records
to support your information, so it is important to keep the
necessary records to verify your claims

We work out your individual or business income tax based
on your taxable income using the following formula:
Assessable income − allowable deductions =
taxable income (the amount you pay tax on).
ASSESSABLE INCOME
Most money you receive in carrying on your business is
assessable income. There are some exceptions, such as:
■ loans you receive
■ money you contribute as the business owner
■ GST you collect.

For more information about what is included in
assessable income, refer to Income and deductions
for small business (NAT 10710).
ALLOWABLE DEDUCTIONS
You can claim a deduction for most expenses you incur in
carrying on your business and you can generally claim:
■ an immediate deduction for expenses that are necessary
for the everyday running of your business
■ a deduction over a number of years (depreciation) for other
expenses – for example, capital assets such as machinery,
tools or computers.
You cannot claim a deduction for all expenses you incur.
This includes:
■ loans the business makes
■ money you draw or borrow from the business as the
business owner
■ private or domestic expenses
■ GST you pay if you can claim it as a credit on your
activity statement.
If you exchange goods or services for items other than
cash (that is, you trade or barter), you must include in your
assessable income the value of the goods or services you
received in exchange.

TAXABLE INCOME
When you have worked out your assessable income and
the deductions you can claim, you can calculate your taxable
income. This is the amount your income tax return will show
as the net taxable income from your business. It is the amount
you pay tax on.
If you are a sole trader or partner in a partnership, do not
confuse amounts you draw from the business to live on
(drawings) with taxable income. You have to pay tax on the
business’ taxable income, regardless of the amount of drawings
you make over the year.
You must lodge an income tax return for any year in
which you carry on a business, even if you expect you will
not have to pay any income tax.
Activity statements are different from income tax returns. Even
if you report your PAYG instalments and other obligations on an
activity statement, you must still lodge an income tax return.
WORKING OUT HOW MUCH TAX TO PAY
To work out how much tax you have to pay, apply the
appropriate tax rate to your taxable income. This will vary
according to your business structure.
Current tax rates for resident individuals
Individual tax rates apply to you if you are any of the following:
■ a sole trader
■ a partner in a partnership
■ a beneficiary of a trust
■ an employee of your trust or company