You are running a business, so act like one
When you earn commission income as an independent sales agent in Australia, you are effectively running a sole trader business. This comes with responsibilities, but also with significant tax advantages that employees do not get.
Understanding the basics will help you keep more of what you earn and avoid unpleasant surprises at tax time.
Register for an ABN
If you are earning commission income, you need an Australian Business Number. This is free and takes about 10 minutes online. Without an ABN, businesses may withhold tax from your commission payments at the highest marginal rate.
Once you have an ABN, you can invoice businesses properly and manage your own tax obligations.
GST: when to register
You must register for GST once your turnover exceeds $75,000 per year. Below that threshold, registration is optional. If most of your clients are businesses (which they likely are), registering for GST can be beneficial even below the threshold because you can claim GST credits on your business expenses.
Talk to an accountant about whether early GST registration makes sense for your situation.
Common deductions for sales agents
As a commission sales agent, you can claim deductions for expenses directly related to earning your income. Common ones include:
- Phone and internet costs (business use percentage)
- Vehicle expenses for client meetings and prospecting
- Home office costs if you work from home
- Computer, tablet, and software subscriptions
- Professional development, courses, and books
- Marketing costs including website hosting and business cards
- Travel expenses for industry events and conferences
- Accounting and bookkeeping fees
Keep receipts for everything. Use an app to photograph receipts as you get them so nothing gets lost.
Set aside money for tax
This is where many new agents get caught out. Unlike employees, nobody is withholding tax from your commission payments. You need to set aside money yourself.
A common rule of thumb is to put 25% to 30% of your commission income into a separate savings account for tax. This covers income tax and GST if applicable. Adjust the percentage based on your total income and marginal tax rate.
Pay quarterly BAS and PAYG instalments
Once your income reaches a certain level, the ATO will ask you to pay quarterly instalments of your expected annual tax. This is called Pay As You Go (PAYG) instalments. You will also need to lodge a Business Activity Statement (BAS) quarterly if you are registered for GST.
Mark these dates in your calendar and do not miss them. Late payments attract interest and penalties.
Get an accountant
Once your commission income becomes consistent, invest in a good accountant who understands sole traders and small business. They will save you far more than they cost by identifying deductions you missed and structuring your finances properly.
This is not an area to cut corners. Getting your tax right from the start saves headaches and money down the line.