Cruz and Co

We know tax. Let us look after yours.

  • Home
  • About
    • Meet the Team
    • Our Clients
    • Testimonials
  • Services
    • Tax Consultant and Compliance Services
    • Small Business and Sole Trader Accountant
    • Outsourced Accounting Solutions
    • Business Structure
    • Outsourced CFO
    • Working Visa Refunds
  • Resources
    • Tax Refund Process
    • Client Assistant Schedule forms
    • Downloadables
    • Helpful Links
    • Rental Property Cashflow calculator
    • SMSF Tax Refund Process
  • Contact Us
  • Blog

Connect with us

  • Facebook
  • LinkedIn

The Myth About the Way Most Businesses Are Taxed

By Max Newnham

There is often a misconception among new business owners that they are taxed on the money they withdraw from their business. For nearly every business entity structure this is not the case, the only exception is when a business is operated through a company.

When a business is operated through a company, and cash is withdrawn by the shareholder owners, this can result in the withdrawals being classed as income of either fully franked or unfranked dividends.

For the other business structures, including sole traders, partnerships of individuals, family discretionary trusts, and unit trusts, the owners of the business are taxed on their share of the net profit made by the business.

Q. I work for a designer business that is run by a sole trader. The owner will not withdraw money from her business account as for some reason she believes she is heavily taxed each time she withdraws money. She frequently travels overseas and I have asked for an amount of cash to pay for work expenses such as her dry cleaning, taxi etc. She instead reimburses me for these expenses which sometimes leaves me out of pocket for some time and can create cash flow problems for me. Can she do this and is she correct about being taxed on money she withdraws?

A. There is no legal reason that would stop the owner of the business reimbursing you for the expenses you are paying; it will be up to you decide whether you want to continue working for someone who does this. A more practical way of dealing with these types of expenses is to set up a simple petty cash system.

Under this system a cash float is established, such as $200, and the small business expenses are paid from this float. As each amount is paid it is recorded with the tax receipts kept to justify the amount spent. Periodically an amount of cash is withdrawn to bring the float up to the cash float balance, with the reimbursement being allocated across the different expenses paid out of petty cash.

Your employer is wrong about her paying tax on amounts she withdraws from the business as a sole trader. She will only pay tax on the net profit that her designing business generates each financial year. This net profit is calculated by reducing the taxable business income by all allowable tax deductions.

When businesses are started losses or very small net profits are produced. For sole traders losses are either carried forward or, if they pass the non-commercial loss tests, they can reduce their other income. If a profit is made this is added to other taxable income they have earned in a financial year, and they pay income tax on their total taxable income.

In many cases small businesses need to borrow money to help fund the set-up of the business, the business activities when insufficient income is produced, and to provide cash flow for the owner’s living expenses. In this situation the cash withdrawals are clearly profit as they are funded from the borrowing.

Source: The Age

Testimonials

  • Napoleon Guines

    Director, Travel Company Operations

    Ritchie Cruz and Co are accommodating and have excellent service.

    Cruz & Co have impressed me the most is due to their efficient service.  They are…

    Read full testimonial
  • Dr Krish Perananthan

    Cosmetic and Implant Dentistry

    Ritchie was recommended to me by my father and I have also continued to recommend him to my friends. He is reliable, efficient and has a…

    Read full testimonial
  • Zac Fryer

    Director, Import and Distribution Company

    Ritchie Cruz provides and high level of accounting expertise and goes above and beyond in answering any queries we have.

    Read full testimonial
  • Kellie Pincham

    Director
    Automotive Parts Retailing business

    Cruz & Co offer a great professional and friendly service. Ritchie gave me confidence running the business knowing that he was readily available for…

    Read full testimonial
  • Regina Wang

    Business Tax – Beauty Salon 

    Ritchie has been managing my tax matters as a sole trader for 2 years+. Always very responsive to my questions and make effort to reply…

    Read full testimonial
  • Jae Kwon Yoo

    Business Tax – Electrical Contractors

    Ritchie is awesome. He is very professional and responsive and he is always there to help you. He even replies during weekend. He needs some…

    Read full testimonial
  • Jonathan Yeoman

    Director, Technical Design Company

    This is a new business startup and Cruz&Co. have provided great help, guidance and reassurance from the beginning.

    Ritchie has provided us with excellent service and…

    Read full testimonial
  • Jonathan Fambart

    Business Tax – Travel Industry

    Cruz & Co was introduced to me this year and it was the best decision for my sole trader and personal taxation affairs. Ritchie the…

    Read full testimonial
  • Daniel Robey

    I have and continue to recommend Cruz and Co to many businesses and individuals who are looking for a business advisor and accountant that goes over and above…

    Read full testimonial
  • Vanita Aloda

    Restaurant Owner

    Ritchie Cruz is my Accountant. We have a solid 10 year relationship.

    Ritchie as always provide me with honest and efficient service.

    Is a great communicator, always replies efficiently to…

    Read full testimonial

© 2025 Cruz & Co.

  • Home
  • About
    • Meet the Team
    • Our Clients
    • Testimonials
  • Services
    • Tax Consultant and Compliance Services
    • Small Business and Sole Trader Accountant
    • Outsourced Accounting Solutions
    • Business Structure
    • Outsourced CFO
    • Working Visa Refunds
  • Resources
    • Tax Refund Process
    • Client Assistant Schedule forms
    • Downloadables
    • Helpful Links
    • Rental Property Cashflow calculator
    • SMSF Tax Refund Process
  • Contact Us
  • Blog