Business tax CBE

oli wrote: »

Hi there,

Just went through the business tax exam and it says in the answers that Zhang's salary is not an allowable expense and is added back, why is this? I thought that salaries were an allowable expense? By the looks of things it doesn't say what he does so is that a clue? Its the one part of that question that I really don't understand.

Any help would be much appreciated

Hi Oli

The CBA doesn't give enough detail about the business, but the same question is in the Osborne workbook practice assessment 2, page 66. Here it says that Zhang is a sole trader, therefore his 'salary' would be drawings and he could choose how much or little he was going to draw from the business. If it was an allowable expense it would change his tax liability. Hope that helps.

Agreed.

Sole traders are taxed on profits. Any 'salaries' paid to themselves are in fact drawings and do not affect tax.