Important Tax Tips for Australian Small Business
Are you the proprietor of a small business in Australia? If this is the case, it is imperative that you remain current on the most recent tax advice and modifications. This blog post will provide an outline of some important tax guidelines that small businesses in Australia should keep in mind.
In addition to this, we will discuss some recent changes that have been made to the tax system and how they can impact you. Therefore, whether you are just getting started with your business or have been operating it for some time, be sure to read on for some useful advice!
When it comes to taxes, owners of small businesses in Australia have a lot of considerations to make. There are a lot of rules and regulations that need to be followed, and some of these include the goods and services tax (GST) and income tax, as well as depreciation and fringe benefits. Therefore, in order to make things a little bit simpler, here are some key tax recommendations for small businesses in Australia.
It is essential for you, as the owner of a small business in Australia, to have a solid understanding of the tax system and how it interacts with your company.
It is in your best interest to educate yourself on the fundamentals so that you can take advantage of the many deductions and exemptions that may be available to you. In the next blog post, we will go over some of the most crucial tax recommendations that small businesses in Australia need to know. In addition, we will provide connections to resources that you can use to find additional information.
It is essential that you have a good understanding of the tax regulations that are relevant to your situation. Small businesses can qualify for a wide variety of tax deductions and credits; therefore, it is imperative that these opportunities be utilized. In this article, we will discuss some ways in which you can lower the amount of money that you owe in taxes.
In Australia, the taxation of small enterprises is distinct from the taxation of other kinds of businesses. If you are the owner of a small business, it is imperative that you have a solid understanding of the tax advice that pertains specifically to you.
You will be able to avoid legal trouble and reduce the amount of money you owe in taxes if you do this. In this blog post, we will go over some of the most significant tax advice that small businesses in Australia should be aware of. In addition, we will include connections to resources that might provide you with additional information regarding each piece of advice.
It is vital to start thinking about your taxes as the end of the fiscal year draws closer because it will soon be time to file them. If you own a small business in Australia and pay taxes, there are a few tax tips that you should be aware of to ensure that filing your taxes goes as smoothly as possible. In this article, we will provide an overview of some of the most significant ones so that you will be well-prepared for tax season.
As we move closer and closer to the beginning of a new tax year, there are a number of things that you, as a taxpayer, absolutely must be aware of. We will go over everything, from deductions to GST and more so that you can be certain that you are making the most of all of the advantages that are at your disposal.
Because of the possibility of incurring penalties and fines for failing to comply with tax rules, it is critical to be aware of the steps that must be taken in order to remain on the legal side of the line. This article on my blog will provide a concise summary of some of the most important tax issues that small businesses need to be aware of.
It would be an understatement to say that small businesses in Australia have to deal with a lot of red tape, but happily, there are some tax tips that can make the process a little less scary. Small businesses in Australia have to deal with a lot of red tape.
In this piece, we will discuss a few of the more significant ones so that you can make sure you are claiming everything to which you are legally entitled.
Continue reading to find out more information!
1. Would Your Company Be Classified As A “Small Business”?
The Australian Taxation Office (ATO) offers numerous tax breaks and exemptions to small enterprises. To be considered a “Small Business Entity,” a company must meet certain criteria, the most important of which is that its “aggregated turnover” be less than $10 million (that is, your annual turnover plus the annual turnover of any business connected or affiliated with you). Additionally, the company must run a business for all or part of the fiscal year.
2. A decrease in the tax rate for corporations applicable to small businesses
If “passive income” accounts for less than 80 percent of a company’s total assessable revenue, the company will pay a tax rate of 27.5 percent. This rate applies to enterprises with gross sales of less than $50 million (such as interest dividends, rent, royalties and net capital gains).
If you want to organize your business as a Trust, one potential tax saving method would be to funnel income through a “Bucket Company” and set your annual tax rate to a maximum of 27.5%. In order to be eligible for the reduced company tax rate of 27.5 percent, this business must first meet the requirements to qualify as a “base rate” organization.
Note that the corporation tax rate has been lowered from 27.5 percent to 26 percent for the upcoming 20-21 fiscal year, and that it will be decreased again to 25 percent for the upcoming 21-22 fiscal year.
3. Immediate Deductions and Immediate Write-Offs of Assets
A bill that extended the instant asset write-off privileges was enacted by the Federal Government on October 14, 2020.
The threshold for the immediate write-off of assets is established at $150,000, and it only applies to companies with an aggregated turnover of less than $500 million. In addition to that, the asset in question must have had its initial use or installation somewhere between the 12th of March 2020 and the 30th of June 2021. (this is an extension of the original end date of December 31 2020).
The instant asset write-off threshold will increase to $150,000 (from $30,000) beginning March 12, 2020 and continuing through June 30, 2020 for enterprises with an aggregated turnover of less than $500 million.
This implies that you can purchase an asset of up to $150,000 until June 30 and claim a deduction on your tax return for the entire amount, rather than having to partially write off the asset based on the rate at which it depreciates.
The small business tax write-off threshold will return to $1,000 on July 1, 2020, and it will only be available to companies whose annual aggregated revenue is less than $10 million. This change will take effect.
How the new provisions take effect:
- Businesses that have an aggregated yearly revenue of less than $500 million are eligible to deduct the cost of new or used depreciating assets with a price tag of less than $150,000 (exclusive of GST) beginning March 12, 2020 and continuing through June 30, 2021, provided that the assets were installed and ready for use during the period.
- Businesses that have an aggregated annual turnover of less than $5 billion are able to deduct the full cost of new qualified assets for tax purposes beginning October 6, 2020 and continuing through June 30, 2022, provided that the assets are installed and ready for use throughout the period.
- Businesses that have an aggregated annual revenue of less than $50 million are eligible to deduct the full cost of new or used eligible depreciable assets from their taxable income beginning October 6, 2020 and continuing through June 30, 2022, provided that the assets are installed and ready for use during the period.
- Businesses that have an aggregated turnover of between $50 million and $500 million are eligible to deduct the full cost of eligible second-hand assets that cost less than $150,000 (exclusive of GST) from their taxable income beginning December 31, 2020 and continuing through June 30, 2021, provided that the assets are installed and ready for use during the period.
- If a small business’s total annual revenue is less than $10 million, then the business will be eligible to deduct the remaining balance from its small business pool at the end of the 2021 fiscal year.
If the extensions hadn’t been granted, the barrier for the instant asset write-off, which is currently set at $150,000, would have dropped to $1,000 and would have been available to only small enterprises with annual revenue of less than $10 million after June 30, 2020.
4. Maximise Deductible Super Contributions
All individuals are eligible to receive concessional superannuation of $27,500. If you go over this limit, you will be subject to additional taxation.
The contribution must be received by the fund no later than the 30th of June in order for it to be included toward the employee’s contribution ceiling for that particular, fiscal year.
It is important to note that employer super guarantee contributions are already factored into these restrictions. Therefore, in the event that a concessional contribution is made that is in excess of these limits, the excess is included in your assessable income and subject to taxation at your marginal rate, in addition to an excess concessional contributions penalty.
5. Tools of the Trade / Items Exempt from FBT
When it comes to buying equipment, the purchase of Tools of Trade and other products that are free from FBT for both business owners and employees can be considered a tax benefit.
Handheld or portable tools, computer software, notebook computers, personal electronic organizers, digital cameras, briefcases, protective apparel, and mobile phones are some examples of items that can be packaged.
In the event that the transaction is properly structured, the employer will be eligible for a tax deduction for the reimbursement payment that they made to the employee (for the cost of the equipment). Additionally, the employer will be able to claim any GST input credit, and the employee’s total salary package will only be reduced by the amount that the cost of the item excludes GST.
6. Make Contributions to Your Voluntary Retirement Account
Concessional super contributions, often known as pre-tax super contributions, are subject to a tax rate of 15 percent. This is lower than the lowest income tax rate, which is 19 percent, and the corporation tax rate, which is 27.5 percent; in addition, you can claim a deduction on contributions.
The maximum amount that an individual can contribute to their concessional superannuation account is $25,000. Nevertheless, let’s say you’re thinking of trying to get a tax break for the concessional contributions you’ve made. In that instance, you will be required to submit to your super fund the appropriate paperwork labelled “Notice of intent to claim or vary a deduction for personal super contributions.”
7. Ensure that Employee Pensions Are Paid
In order to be eligible for a tax deduction for the current fiscal year, you must ensure that the super fund or the Small Business Superannuation Clearing House (SBSCH) has received the contributions for employee superannuation by the end of the month of June.
It is in your best interest to avoid making superannuation contributions at the eleventh hour because there is a possibility that processing delays will result in their being received after the end of the year.
If, for whatever reason, you find yourself in the position of having to make payments at the very last minute and you would like to be able to deduct those payments from your taxes for the current year, please get in touch with us as soon as possible and before you make any payments so that we can discuss possible resolutions.
8. Defer Income
When it comes to filing taxes, firms should try to bring in as little money as possible while simultaneously racking up as many expenses as possible.
You might be able to lower the amount of income that is subject to taxation for the 2019-20 fiscal year by deferring some of the money that you earn. This will depend on the specifics of your position.
For instance, if you delay sending an invoice until July 1, 2020, the amount of the invoice will be counted toward your taxable income for the following financial year rather than for this year. This is because the next financial year begins on July 1.
Timing is everything when it comes to your income and expenses, which means you’ll want to postpone money into the tax year that follows the one you’re in now. Even though you will ultimately have to pay taxes on what you have earned, in the meanwhile, you will have saved money, and that money is yours to use in any way that you see fit. Even though you will eventually have to pay taxes on what you have earned.
For this purpose, it is best to utilize accrual accounting (rather than cash accounting) and to keep track of both your income and your expenses; we recommend making use of online accounting software such as Xero.
9. Bring Forward Expenses
Bring forward any expenses that you anticipate incurring during the current tax year, in the same vein as point number seven. Before the 30th of June, make purchases of consumable commodities. A few examples of these are marketing materials, consumables, stationery, printing supplies, office supplies, and computer supplies. Spend the money today in order to collect the deductions as quickly as possible.
10. Review Your Debtors
Regardless of the year in which you invoiced unrecoverable debts, you are eligible to claim a tax deduction on those debts so long as you can demonstrate that the debt was initially included as income and has been written off by the end of the fiscal year (June 30).
Maintain records of your decision to cancel the debt, as this can serve as evidence that the debt was cancelled before the end of the fiscal year (EOFY).
11. Maintenance and Repairs of Vehicles
Before the 30th of June, you are responsible for making payments for any business, rental property, or employment-related repairs and upkeep.
12. Defer Investment Income And Capital Gains
If at all possible, you should make it so that the date on which you receive investment income (for example, interest on term deposits) and the date on which you sign a contract to sell assets with capital gains will both take place AFTER June 30.
13. The Record Book for Motor Vehicles
Make sure that you have an up-to-date and comprehensive Motor Vehicle Log Book for a period of at least a month and a half. The beginning of the 12-week period must take place on or before the 30th of June at the latest.
You should create a record of the reading on your odometer as of the 30th of June and save any receipts and invoices for costs related to your motor vehicle.
Using the cents-per-kilometre technique is another option, which does not require keeping a log book in order to make a claim for up to 5,000 business kilometres driven (based on a reasonable estimate).
14. Don’t Forget About the Income Tax Deduction for Small Businesses
A tax offset of up to $1,000 per year is made available to small enterprises through the Small Business Income Tax Offset program.
This offset is presently available for use by unincorporated small firms that began operations in the 2016–2017 fiscal year and had an aggregated turnover of less than $5 million.
This is something that might be very helpful for new enterprises just getting off the ground. In addition, owners of small businesses do not need to submit an application for the offset because the ATO will calculate this for them based on their tax return.
15. The Depreciation of an Investment Property
If you own a rental property and haven’t already done so, you should make arrangements for the preparation of a Property Depreciation Report. This will enable you to claim the maximum amount of depreciation and building write-off deductions on your rental property. If you haven’t already done so, you should own a rental property.
16. Loans to Private Companies (also known as “Div 7A”)
If you are a business owner who has borrowed money from your firm in prior years, you are responsible for making sure that the proper principal and interest repayments are made by the end of June.
Current year loans have to either be paid back in full or have a loan agreement entered into before the due date of lodgement for the company return. If either of these options are not taken, the loan will be reported as an unfranked dividend when the person files their return.
17. Inventory Taken at the End of the Year and Work in Progress
On June 30, you need to compile a comprehensive Stock Take and Work in Progress listing, if either of them are pertinent to your situation. After that, look over your listing and cross off any stock items that are no longer useful or relevant.
18. Write Off Bad Debts
Examine the list of your Trade Debtors and write off any uncollectable debts before the 30th of June. Create a document for the management meeting that lists each bad debt as evidence that these amounts were written off before the end of the year, and enter this information into your accounting system no later than the 30th of June.
19. Tax Breaks for Small Businesses That Make Prepayments
Taxpayers who qualify for the “Small Business Concession” can earn a complete tax deduction for the current financial year by making prepayments (up to 12 months’ worth) on expenses (such as loan interest, rent, and subscriptions) PRIOR to the deadline of June 30.
20. Trustee Resolutions
Make sure that all of the Discretionary (“Family”) Trusts have their Trustee Resolutions completed and signed by the deadline of June 30. Talk to us if you want additional details regarding these new year’s resolutions.
21. Write Off Damaged Or Obsolete Stock
If your company owns stock, you should assess your stock value and consider writing off any stock that is either damaged or no longer relevant to your firm.
Carry out a stocktake while keeping in mind that the worth of the stock can be determined either by its cost price or its net realisable value (the price at which it is anticipated to be sold), whichever is lower.
Have you been affected by COVID-19?
If the situation caused by COVID-19 has had a negative impact on your company, the ATO may be able to offer assistance by the following means:
- extending the amount of time you have to pay your tax payment or submit tax papers like activity statements;
- Providing qualified businesses with cash flow enhancements ranging from $20,000 to $100,000 that are exempt from taxation;
- Developing a method of paying your taxes that is tailored to your specific circumstances and includes a grace period free of interest;
- Cancellation of any fines or interest that have been imposed during the time that your company has been harmed.
Even while following these suggestions could help you maximize your small business tax deductions and increase your return, it is still a good idea to consult with a tax advisor or an accountant who can provide you with expert guidance that is specific to your company.
22. Concessions on the Capital Gains Tax for Small Businesses
When a company sells an active asset and makes a profit, it is required to pay capital gains tax (CGT) on the profit made from the sale of the asset within the same financial year.
The realm of microbusinesses The capital gains tax (CGT) that a small business is required to pay for an active asset may be greatly, and in some cases entirely, reduced via CGT concessions.
The 15-year exemption, the 50 percent active asset reduction, the retirement exemption, and the rollover are the four primary concessions that are offered to small enterprises that meet the eligibility requirements.
23. Deducting ‘bad’ Debt
A debt that is owed to a company but has not been paid back is considered a “bad” debt. On the other hand, if this kind of debt was included in the company’s assessable income in either the current or the preceding income year, the business might be eligible for a tax reduction for it.
For a debt to be considered delinquent, it is necessary to fulfil a number of criteria first. If it does qualify, you may be able to deduct the cost from your taxable income.
24. Raise the threshold for claiming deductions for depreciation
Depreciation deductions are something that owners of small businesses have to take advantage of if they want to maximize their cash flow. There is no reason for the owner of a small business that rents their space to ignore the possibility of claiming depreciation. Tenants in commercial spaces are eligible to claim any and all deductions related to their assets and fit-outs.
At this year’s tax filing, it is easier than it has ever been to claim more money due to the greater quick asset write off that is available through the end of this fiscal year. Any company that has an annual turnover of up to $500 million is eligible for this write-off, which enables them to immediately deduct the cost of any plant and equipment asset that is valued at up to $150,000.
Business Tax FAQs
1. 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.
2. 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 authorized in the 2014 year) can be claimed for hours spent working at a home office as of the first 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:
- council rates
- house insurance
- pest control
- mortgage interest
3. 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.
4. I run a furniture delivery business & have a 5-tonne truck, getting very expensive to run. I’ve heard the government gives business tax rebates for the cost of fuel. How to qualify for a fuel tax rebate?
The majority of businesses in Australia are eligible to claim fuel tax credits for the operation of machinery, plant, equipment, and heavy vehicles that are utilized in the operation of that firm.
To be able to make a claim, the company first needs to be registered for the Goods and Services Tax (GST), and then the claim needs to be made on the Business Activity Statement (BAS) that is required to be submitted.
The quantity that can be claimed will vary according to the kind of gasoline that was used and how it was put to use. In situations where alternative fuels, such as LPG, are utilized, fuel tax credits are not available.
5. I have started my own business and wonder if I need to register for GST.
Businesses in Australia that have 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.