What financial obligations do you have as soon as you start a trade business?
There are four core obligations to understand: GST, income tax, superannuation, and PAYG withholding. Each one applies differently depending on your business structure and whether you employ staff, so it pays to know them before you open your doors.
GST applies once your sales reach $75,000 or more in a financial year. At that point you are required to be registered. On every invoice you issue, 10% belongs to the tax office, not you. On every purchase you make that includes GST, that 10% portion comes back to you. The net result is what you settle on your activity statement each quarter.
Income tax, superannuation at 12% for the 2025-26 financial year, and PAYG withholding for any staff you employ are all non-negotiables once the relevant circumstances apply to you.
How does income tax work differently when you are self-employed?
As a sole trader, you and the business are the same entity. The profit the business makes is your profit as an individual, and it gets taxed at marginal rates alongside any other personal income. The more you earn, the higher the rate that applies, up to 45%.
If you operate through a company, the company pays its own tax, currently at 25% of earnings. Anything you then draw out as wages or income gets taxed again under a separate regime. These are two distinct buckets, and the right structure for you is something to work through with your accountant.
What is the difference between drawings and wages, and why does it matter?
As a sole trader, when you take money out of the business it is classified as drawings, not wages. You are still taxed on the profit the business makes, not on what you withdraw.
For example, if your business makes $100,000 profit but you only take $80,000 out, you are still taxed on the full $100,000. Always treat drawings as a pre-tax amount and make sure you are setting aside enough to cover the tax bill when it comes.
Why should you sort your finance before you leave employment?
Once you move from PAYG employment to self-employment, most lenders will not approve you for a loan for up to two years. That is a long window to be without borrowing options, especially in the first year when unexpected costs and slow periods are common.
The practical steps to take while you are still employed include reviewing your home loan to make sure it is competitive, considering whether to access home equity as a financial buffer, securing vehicle finance before you leave, and consolidating any personal debt early. All of these are easier and come with better rates and products while you still have a payslip.
How do you fund startup costs when you are just beginning?
Startup costs cover more than just registration and a logo. They include licences and permits, equipment, tools, vehicles, working capital to keep the business running until income is consistent, marketing, and an emergency fund for slow periods and unexpected expenses.
You can fund these through personal savings, selling assets, a PAYG leave payout, business loans, equipment finance, or equity from your home. The key is to have a plan before you start, not six months in when cash is running low and lending options may be limited.
What financial habits should you build from day one?
Using multiple bank accounts so you can split income as it comes in is one of the most practical habits you can adopt. Some of that money is yours to keep, some never will be, and some you are holding temporarily for the tax office or a super fund.
Putting aside for GST and income tax as you go means the bill at the end of the quarter or the end of the year is not a shock. Keeping accounts out of overdraft and meeting payments on time also matters to lenders if you need finance in those early months. Good conduct in your accounts from the start gives you more options later.
