Australian Small Business Tax Guide
If you own a small business in Australia and are looking for information about your tax requirements, you’ve come to the right place. This article gives an overview of the taxes for which you can be responsible and offers advice on how to maintain compliance with the law.
It is essential to have a good understanding of your tax duties and to make certain that you are paying the appropriate amount of tax, regardless of whether or not you have been in the company for a while. Continue reading to learn more about this topic!
In Australia, operating a small business can be challenging, but it also has the potential to be incredibly rewarding if you have access to the appropriate knowledge and assistance.
This article offers an overview of the Australian tax system as it pertains to small businesses so that you can ensure that you are doing everything right and making the most of all of the deductions and allowances that are available to you.
Read on to obtain all of the information you require, regardless of whether you are just starting out or are already quite successful but want to ensure that you are up-to-date on the most recent updates.
As the owner of a small business in Australia, it is essential for you to have a solid understanding of the various tax rules and regulations that are relevant to your situation.
This book will provide an introduction to the most essential components of the taxation system that apply to small businesses in Australia. These aspects include income tax, goods and services tax (GST), company tax, and fringe benefits tax (FBT). This is the guide for you if you are either just getting started or are searching for ways to lower the amount of revenue that is subject to taxation. It is essential that you become familiar with the tax regulations that are relevant to your company in order to avoid any penalties. In this article, we will present an outline of the tax rules that apply to small enterprises in Australia. In addition to this, we will provide some pointers on how you can lower your tax liability and keep more money for yourself.
Have you already established a little business in Australia under your own name, or are you considering doing so? In that case, it is critical to have an understanding of the taxes that are levied against small enterprises in our country. This article will provide a summary of the most significant tax regulations that apply to small businesses in Australia. If you are in the process of beginning a small business or currently own and operate one, it is imperative that you read on for the most recent information available.
This tutorial gives an overview of the process of filing taxes, including the types of deductions that may be available to you. In addition to that, we walk you through the steps of obtaining an ABN and filing your return. This book will provide you with all the information regarding Australian small business taxes that you require, regardless of whether you are just getting started or are currently up and running.
When it comes to your taxes, there is no answer that is universally applicable to everyone. As an owner of a small business in Australia, it is important for you to have a fundamental understanding of taxation, and the Australian small business tax handbook is an extensive resource that may assist you with this.
This tutorial will walk you through everything you need to know to get started with your tax preparation, from determining what qualifies as taxable income to claiming deductions and allowances. Therefore, whether you are just starting in business or want to ensure that you are making the most of all the available tax incentives, the following passages will provide you with crucial information.
You probably weren’t aware that the tax rate for small businesses in Australia is 27.5 percent, but you should be. If you are the owner of a small business in Australia, it is essential that you be aware of the changes that have been made this year to the applicable tax rates and rules.
In this tutorial, we’ll present an introduction to Australia’s small business tax system, including information on how to claim deductions and submit your yearly return. In addition, we’ll discuss some of the common tax issues that face small businesses in Australia. We hope that this information will assist you in effectively managing your business and its associated tax obligations.
Let’s get started!
What Is A Small Business?
When discussing taxes, a company is considered to be tiny if it has a yearly turnover of less than $10 million, with the exception of the small business CGT exemptions, for which the turnover criterion is under $2 million.
The law stipulates that turnover needs to be calculated from the ‘aggregated’ amounts, which means annual turnover (gross income, excluding GST) of every ‘connected’ or ‘affiliated’ business. This is to prevent businesses from splitting activities so they can slip below the $10 million threshold and gain access to the various tax concessions. The law also requires that turnover needs to be calculated from the ‘aggregated’ amounts.
Small Business And Tax
The fact that the government provides tax breaks to the small business sector for a variety of different reasons is evidence of the significance of the small business sector.
Temporary Full Expensing
The government has enacted a significant package of reliefs for businesses in order to encourage enterprises to invest tax efficiently in new capital assets. This is in an effort to give businesses a boost out of the blues that have been caused by COVID.
The tax break, which is known as “temporary full expensing” (or TFE for short), enables businesses to deduct the full cost of eligible capital assets from their profit for the year rather than depreciating the cost over the course of several years. This is in contrast to the traditional method of depreciating the cost over the course of several years. The new regulation will take effect on October 6th, 2020.
The new measures could (with some very substantial limitations) represent a significant potential to enhance your business this year, particularly for smaller enterprises. However, these opportunities come with certain restrictions.
The whole purchase price of any and all capital acquisitions can now be promptly deducted by businesses. This includes the following types of purchases:
- A shop or café’s fixtures and fittings, for example, are examples of fit-outs.
- Technology, including mobile devices, desktops, point-of-sale terminals, and surveillance and alarm systems
- Tools, plant and equipment
- Office furniture
- Motor vehicles such as utes, delivery vans, and the majority of cars (with the exception of cars costing more than $59,136) are included in this category.
- Solar systems
To qualify, a company’s yearly revenue must total less than $5 billion, and the company as a whole must meet this requirement. When discussing “aggregated” turnover, it is important to note that it is necessary to include the turnover of any and all parent companies, even those based overseas.
In addition, companies that have a total turnover of more than $5 billion but a total income in Australia of less than $5 billion are also eligible for the tax reduction, provided that they had previously spent more than $100 million in the fiscal years 2016–17 through 2018–19.
This indicates that large multinational corporations, whose annual revenue typically surpasses $5 billion, still have a chance to gain anything from this opportunity.
Because the requirement for aggregated turnover is so high, virtually all companies operating in Australia are eligible to participate in the program.
TFE applies to newly purchased depreciable assets as well as the costs of making changes to previously qualified assets (even if the existing assets were acquired before the scheme started).
Small and medium-sized firms (those with an aggregated annual turnover of less than $50 million) are eligible to deduct the full purchase price of used assets from their operating expenses. Businesses with an annual turnover of $50 million or more are not permitted to include second-hand assets in their valuations.
The following are the primary types of assets that do not qualify for the complete write-off of their costs:
- “Expensive” automobiles are those with a price tag that is greater than $59,136.
- Structures and other assets that are qualified for deductions under the capital works category
- Assets located in other countries
- Some major production assets (such fence and water infrastructure, for example) already have an instant write-off program in place, and this program is still in effect
- a company’s resources that aren’t being put to good use.
The cost of so-called luxury automobiles can be depreciated up to a limit of $59,136 (excluding GST), but anything that costs more than that cannot be depreciated at all.
This law, which governed the depreciation of automobiles and was carried over to TFE, has been in effect for a good number of years. The restriction was put in place to prevent companies from splurging on expensive luxury automobiles at the expense of the general public.
The limit on expensive cars does not apply to motorcycles or other motor vehicles that aren’t considered cars for the purposes of taxation. Because of this, commercial vehicles like vans, buses, and trucks can have their entire cost completely written off, regardless of how much they cost. But it’s important to note that some larger utility vehicles are also considered to be commercial vehicles rather than cars. This is the case for tradies, for example.
Consider for a moment that the utility vehicle has a load capacity of more than one tonne (the dealer or manufacturer should be able to confirm this). In that scenario, we do not count that toward the car limit because we do not consider it to be a car. Even though some of the larger and more expensive utes do cost more than $59,136, this provides a potential opportunity to acquire the vehicle and write off the entire cost of the acquisition.
Take note that the last exclusion excludes TFE claims for capital assets used in a non-business capacity, such as assets purchased by investment property owners or assets utilized in your job. This is the case because the exclusion applies to assets used in a non-business capacity.
If you utilize the asset for both business and personal reasons, you are required to proportionately reduce any TFE deductions you claim. For instance, if you buy a new computer for $2,500 and use it for 50 percent at your company and 50 percent for personal reasons, the maximum amount of the purchase that you can deduct from your taxes is $1,250.
The Tax Act has a set of simplified trading stock regulations, according to which you are permitted to include the same stock value at year’s end as you did at the beginning of the tax year if the value of your trading stock did not change throughout the course of the tax year by more than $5,000.
In addition, certain company expenses that are pre-paid and paid for before the end of the fiscal year may qualify for an immediate tax deduction for a small business. Consider the following scenario: payment is made to reimburse an expense that was carried over into the new fiscal year (such as insurance premiums, rent or membership in a trade or professional body). In that instance, you are eligible to make a claim for the deduction during the previous fiscal year. Check your payments for the time period before the 30th of June once more to see whether anything qualifies for the discount.
Taking care of your GST duties can also be made easier since qualifying firms will only be required to account for GST once they have received payment. You also have the option to pay the GST in instalments, and the ATO will figure out the total amount of those payments on your behalf.
If a small business decides to use part of the things it purchases for its own personal use, it has the option of claiming the full GST credits and then making a single adjustment at the end of the tax year to account for the percentage of private use.
In addition, small firms can take advantage of pay-as-you-go tax instalments, which allow them to pay their taxes on a quarterly basis in accordance with a formula that is derived from their most recent tax return assessment. You won’t need to go through the trouble of performing calculations in “long form” because the income reported has been updated to reflect the most recent rise in gross domestic product. This will save you time.
Help For Capital Gains Tax (CGT)
In addition to the normal CGT reduction of fifty percent that applies to individuals, trusts, and pension funds, special capital gains tax incentives for small businesses are also available (but not companies).
There are four different CGT concessions that can be offered to eliminate or decrease the capital gains that a small business or its owners have made. It is limited to the sale of “active” assets, such as retail or office space, and does not encompass “passive” assets, such as a diversified investment portfolio.
Businesses that meet the criteria to be considered small business entities (i.e., they run a business and have a revenue of less than $2 million per year) or businesses in which the net CGT assets of the taxpayer (including its connected entities and affiliates) do not exceed $6 million are eligible for the reliefs.
1. The 15-year exemption
When a taxpayer who has reached the age of 55 and is retiring sells a CGT asset that they have owned for at least 15 years and disposed of, the taxpayer is eligible for a tax credit.
2. The retirement exemption
A taxpayer is permitted, up to a lifetime maximum of $500,000, to apply capital earnings from the disposal of a CGT asset against the retirement exemption. Due to the fact that it is not essential to retire, the concession can be utilized on more than one occasion.
3. The 50% active asset reduction
There are certain conditions that must be followed in order to be eligible for the capital gain discount of fifty percent that can be applied to the profit made from the sale of a CGT asset.
4. The CGT rollover
It is possible to postpone payment of tax on a capital gain that results from the sale of a CGT asset. A replacement asset is purchased inside of two years, and the gain is put on hold until the replacement asset is sold.
Be careful not to confuse the money that belongs to a company with your own
The so-called “deemed dividend” laws end up snaring a significant number of small enterprises. According to the tax law, loans and advances made to shareholders of private companies or their associates are considered to be taxable and unfranked dividends for the shareholders of the private companies.
The purpose of these regulations is to prevent the profits of privately held enterprises from being given to shareholders in the form of tax-free “loans.”
If you find yourself in the position of having to borrow money from a company in which you are a shareholder, you should make every effort to ensure that the money is repaid before the deadline for the company tax return for the year. Declare a dividend and count the amount received as income if that can’t be done; in such case, the dividend will be franked, assuming that’s anything that can be done with it.
Another option is to sign into a loan arrangement that complies with the requirements, complete with a stated loan length, a commercial interest rate, and capital payments.
Consider the tax ramifications of using firm assets for private use at a price that is lower than their current market worth because the rules for considered dividends can potentially catch this scenario.
The amount of the presumed dividend is equal to the price that, in a market of comparable size and liquidity, someone would have paid for the use of the assets, less any amount that was paid for their use.
It is also something that should be taken into consideration to make a so-called “in-specie” dividend, which is the transfer of the asset to the shareholder rather than the payment of a cash dividend.
The current value of the asset will determine whether or not this course of action is cost-effective. Alternately, if the shareholder has previously provided the firm with financial assistance, the asset could be transferred to the shareholder as a return of the money that was loaned to the company, subject to the valuation of the asset.
Deductions on Taxes for Businesses
As long as the expenses directly relate to the production of your taxable income, you are eligible to claim a tax deduction for the majority of the costs associated with running your business.
If there is a tax or retirement phrase that you aren’t familiar with, you can find its explanation in our glossary.
1. What You Are Entitled to Request
In order for a business deduction to be considered legitimate by us, it must adhere to one of these three golden rules:
- To begin, the expense must have been for your company rather than for your personal use.
- Second, you are only allowed to deduct the portion of the expense that was utilized for your business if the expense was used for both your business and your personal life.
- Third, you are required to have records to back up your claims.
You can make a claim for a deduction equal to the full purchase price of an item if, for instance, you buy a laptop and use it exclusively for the purposes of your business. You are only allowed to deduct half of the cost of the laptop, however, if you use it for business purposes fifty percent of the time and for personal purposes the other fifty percent of the time.
If you are able to claim the GST portion of a purchase as a credit on your business activity statement, then you cannot claim the GST portion of the transaction as a deduction.
2. What You Are Not Allowed to Claim
Some expenses, including the following, are not tax deductible:
- entertainment expenses
- fines for driving infractions
- purely personal or domestic costs, such as those incurred for child care or for the purchase of new items for your family
- costs associated with earning a non-taxable income, such as the money you make through a side hustle or a passion project.
- IF YOU ARE ABLE TO CLAIM the GST portion of the transaction as a credit against the GST that you owe on your business activity statement.
Keep in mind that if you receive PSI, the amount of your deductions may be restricted.
3. When You Are Able to Submit Your Deduction Request
When you can claim your deduction depends on the kind of expense you had, either one that was an operating expense or a capital expense. In most cases, you have the right to claim:
- operating expenses in the year that they are incurred, such as office stationery and salary
- Spreading out the cost of major purchases (such as furniture and appliances) over a longer period of time.
In most cases, you are required to have a legal responsibility to pay for the products or services before you may be considered to have incurred the expense for operational expenses. Although an invoice is not required for an expense to be considered incurred, you will still need to keep a record of the money spent.
If you utilize an item in your business for only a portion of the year, you will typically be required to limit your claim to the portion of the year that the item was used for business purposes.
4. Making a Deduction for an Expense That Has Been Prepaid
Expenses that are paid in advance are governed by a separate set of guidelines. These are expenses that are incurred in the current year for goods or services that will be received (in whole or in part) in a subsequent income year.
If the expense is one thousand dollars or more, you will often be required to apportion (or spread) the expense across the whole supply or service period if any of the following conditions are met:
- won’t receive the whole amount of the products or services during the next year.
- cannot be qualified for a deduction to be taken right away.
5. Instructions on How to File for Your Tax Deduction
Depending on the nature of your company, you may be eligible for one of these tax breaks:
- If you are a sole trader, you can claim these deductions on your tax return under the heading “Business and professional items” by utilizing myTax or the services of a registered tax agent.
- If you are filing taxes as a partnership, you can claim these deductions on your return.
- In the case of a trust, you should include these deductions on your tax return.
- Corporation: Include the deductions in the tax return for your corporation.
How To Streamline Your Business Tax Reporting In
If getting your company ready for tax time requires you to sort through a mound of paperwork, it’s possible that you need to make some adjustments to the way things are done.
Simplifying the methods, you use to report taxes might help you better handle the requirements that come with the end of the fiscal year (EOFY) and save you time. Here are some suggestions to help make the preparations for the end of the fiscal year a little less stressful.
1. Go paperless
To reduce the amount of time spent going through papers during the following year, begin saving your records online. Voici are examples of how this can be accomplished:
- Using your mobile device to scan your cash register receipts.
- You should organize your paperwork by placing it in folders according to logical categories, such as date or document type.
- Using a cloud service to back up your electronic records; doing so will also enable you to share access with any company partners or your accountant.
2. Automate your bookkeeping
Determine whether or not it is possible to synchronize the data from your bank accounts with the accounting software you use. Because of this, you may no longer need to manually reconcile the data from your bank accounts, which can make filing your taxes much simpler throughout the entire year.
3. Create a bank account that is solely for your company.
When it comes to doing your taxes, having a single account for everything can make things more complicated and take more time.
By keeping your business and personal finances in separate accounts at the beginning of the new fiscal year, you will make keeping the books much easier.
Consider opening multiple business transaction accounts for the same reason, even if you already use multiple accounts for this purpose. It is possible that you will find it simpler to report for your subsequent business activity statement (BAS) and to identify any tax deductions that you may have overlooked in the past.
4. Set reminders for key deadlines
If you haven’t done so previously, add important tax deadlines to the calendars on both your phone and your email client.
5. Look for professional help
You may discover further information about your tax reporting on the website of the Australian Taxation Office (ATO), or you can speak to an accountant if you have any questions regarding the matter.
6. Keep good records
You should also make sure that you keep your records for the amount of time that is required by tax law; for instance, you are required to keep records of the acquisition of capital gains tax assets that you may not sell for many years in the future. You should also make sure that you keep your records for the amount of time that is required by tax law.
1. I am self-employed and have paid personal superannuation contributions all year. What can I claim?
You will be entitled to claim a deduction for the contributions to superannuation that you have made to a compliant superannuation fund or retirement savings account, provided that you meet the eligibility requirements. This deduction can be used to reduce your taxable income.
To be eligible for this, you must be completely self-employed or have an income from employers that accounts for no more than 10 percent of your total assessable income (which also includes reportable fringe benefits and reportable superannuation contributions).
In addition to this, you are required to have first informed your superannuation fund of your intention to make a claim and obtained confirmation of this notification.
2. I have started my own business and wonder if I need to register for GST.
Businesses in Australia that have an annual revenue of $75,000 or more are required to register for the goods and services tax (GST). If your company has a lower turnover, registering is voluntary but not mandatory; however, you are free to do so if you so choose.
If you are registered for GST, you will be the only one who is required to charge it to your consumers. When you submit your application to register for GST, the local office can help you with the process.
3. I keep a room set aside for a home office and would like to claim some expenses.
If a taxpayer conducts all or part of their employment operations from home and has a room designated specifically for doing the work, then a portion of the taxpayer’s operating expenditures may be deducted. A log detailing the number of hours spent in the office performing work-related activities ought to be maintained for a period of at least one month in a journal.
The Commissioner’s rate of 45 cents per hour (an increase from the 34 cents per hour that was allowed in the 2014 year) can be claimed for the hours spent working at a home office as of the 1st of July, 2014.
Unless the home is being utilized as a place of business, the only expenses that can be claimed for a home office are operating costs. These costs include energy, heating, and the depreciation of office equipment.
Deductions can be claimed on occupancy and running expenses in the event that a home is used for business purposes (and can be readily recognized as such, such as by having a separate entrance, signage, or clients or customers coming to a specific area of your home), and these include the following costs:
- mortgage interest
- house insurance
- pest control
- council rates
4. I have heard that self-employed people can claim superannuation co-contribution from the government. Am I eligible because I paid money into my super this year and run my own business?
If more than 10 percent of your total assessable income comes from running that business, qualified employment, or a combination of the two, you may be eligible for the superannuation co-contribution. Eligibility is determined by how much of your total income comes from those sources.
The income from investments does not count toward the required minimum. Only the portion of your superannuation payments that you do not claim as a tax deduction will be eligible for the co-contribution. If you claim any of your contributions as a tax deduction, you will not receive the co-contribution.
5. I ran a small business and prepaid 12 months’ rent on the premises that I operate from in June. Can I claim the whole amount on my tax return even though most of the payment is next year?
If your annual revenue is less than $50 million, you may be able to deduct some qualified pre-paid expenses in the same year that they were paid for, provided that your turnover is less than $50 million.
Rent, insurance, and membership dues to professional organisations are all examples of prepaid expenses that can be deducted from your taxes in the year that they were paid.
Payments made for periods of twelve months or less will be considered eligible costs, and the period covered will expire in the next income year.
Your prepaid rent is eligible for a tax deduction provided that the period it covers does not extend beyond a year and that the term will come to a conclusion prior to the end of the next income year. This means that you will be able to deduct the full amount from your taxes for the current year.