For Sole Trader is Income Tax better paid from Business or Personal Bank Accounts?

Question

I am a Sole Trader in Australia and maintain two sets of Bank Accounts. One set is for Business and the other is for Personal. I normally draw money from my Business Accounts into my Personal Accounts once a month as a "salary" and otherwise run them separately by identifying incomings and outgoings as belonging to one or the other.

I have been trading for less than two years, after previously always working as an employee, and so have only just submitted my first income tax return which was prepared by my accountant.

As per Australian Tax Office (ATO) guidelines, I have an Australian Business Number (ABN), I am registered for Goods and Services Tax (GST) and I use my individual tax file number (TFN).

Now that I know how much tax is owing for the 2012/2013 Financial Year, is this an amount that I would be more sensible to pay from my Business Accounts or my Personal Accounts?

Answer 1

I don't think it really matters, my understanding is that as a sole trader there is no distinction between your personal and business tax affairs. The distinction between your personal and business account is mainly for your own personal benefit to make it easier to differentiate between "wages" and retained earnings.

If you want to maintain this distinction with regard to tax then you need to somehow differentiate between tax paid on your "wage" and tax paid on retained earnings. You could then either make two payments, or pay from either and transfer the difference from the other.

Either way, it's just a matter of perspective rather than something with a physical difference.