In 2021 Tax Tips

Important Tax Tips for Australian Small Business

Are you a small business owner in Australia? If so, it’s important to stay up to date on the latest tax tips and changes. This blog post will provide an overview of some key tax tips for Australian small businesses. 

We’ll also highlight some recent changes to the tax landscape that may affect you. So, whether you’re just starting or you’ve been running your business for a while, be sure to read on for helpful tips!

Small business owners in Australia have a lot to think about regarding taxes. From GST and income tax to depreciation and fringe benefits, there are a lot of rules and regulations to keep track of. So, to make things a bit easier, here are some important tax tips for Australian small businesses.

As an Australian small business owner, it’s important to understand the tax system and how it applies to your business. 

There are several deductions and exemptions you may be able to claim, so it’s worth familiarising yourself with the basics. This blog post will outline some of the most important tax tips for small businesses in Australia. We’ll also provide links to resources where you can find more information.

It’s important to be aware of the tax laws that apply to you. Several different tax deductions and credits are available to small businesses, so make sure you take advantage of them! In this blog post, we’ll provide some tips on how to reduce your tax bill.

In Australia, small businesses are taxed differently than other types of businesses. So if you’re a small business owner, it’s important to understand the tax tips that apply to you. 

This can help you stay compliant with the law and save money on your taxes. This blog post will discuss some of the most important tax tips for Australian small businesses. We’ll also provide links to resources where you can learn more about each tip.

As the end of the financial year approaches, it’s important to start thinking about your taxes. If you’re a small business owner in Australia, there are several tax tips you need to know to make the process as smooth as possible. In this blog post, we’ll outline some of the most important ones so that you can be prepared for filing season.

In this blog post, we’ll discuss some of the most important things you need to know as we head into the new tax year. We’ll cover everything from deductions to GST and more, so you can be sure that you’re taking advantage of all the available benefits. 

Failing to comply with tax laws can result in penalties and fines, so it’s essential to know what you need to do to stay on the right side of the law. This blog post will provide a brief overview of some of the key taxation issues small businesses should be aware of. 

Saying that small businesses in Australia have to deal with a lot of red tape is a bit of an understatement, but thankfully some tax tips can make the process a little less daunting. 

In this post, we’ll outline a few of the most important ones, so you can make sure you’re claiming everything you’re entitled to. 

Keep reading to find out more!

1. Is Your Business A “Small Business” Entity?

Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected/affiliated with you) of less than $10 million and be operating a business for all or part of the financial year.

2. Reduction In Company Tax Rates For Small Business

The company tax rate for businesses with less than $50 million turnovers is 27.5% if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties and net capital gains).

If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 27.5% for the financial year. This company must qualify as a “base rate” entity to be eligible for the lower 27.5% company tax rate.

Important note: the corporate tax rate for the 20-21 financial year is 26% (reduced from 27.5%) and 25% in the 21-22 financial year.

3. Instant Deduction / Instant Asset-Write Off

On October 14 2020, the Federal Government passed an extension of the instant asset write-off concessions into law.

The instant asset write-off threshold of $150,000 applies to businesses with an aggregated turnover of less than $500 million. In addition, the asset must have been first used or installed between March 12 2020, and June 30 2021 (this is an extension of the original end date of December 31 2020).

From March 12 2020, until June 30 2020, the instant asset write-off threshold is $150,000 (up from $30,000) for businesses with an aggregated turnover of less than $500 million. 

This means you can purchase an asset of up to $150,000 until June 30 and claim a deduction for the full amount on your tax return, rather than partially writing off the asset based on its depreciation rate.

From July 1 2020, the small business tax write-off threshold will drop back to $1,000 and only apply to businesses with an aggregated turnover of less than $10 million.

How the extension applies:

  • From March 12 2020, to June 30 2021 (installed and ready for use during the period), new or second-hand depreciating assets costing less than $150,000 (GST exclusive) can be written off by businesses with an aggregated turnover of less than $500 million.
  • From October 6 2020, to June 30 2022 (installed and ready for use during the period), new eligible assets are 100% tax-deductible for their full cost by businesses with an aggregated annual turnover of less than $5 billion.
  • From October 6 2020, to June 30 2022 (installed and ready for use during the period), new or second-hand eligible depreciable assets are 100% tax-deductible for their full cost by businesses with an aggregated turnover of less than $50 million.
  • From December 31 2020 to June 30 2021 (installed and ready for use during the period), eligible second-hand assets costing less than $150,000 (GST exclusive) are 100% tax-deductible for their full cost by businesses that have an aggregated turnover of between $50 million and $500 million.
  • At the end of the 2021 financial year, small businesses can deduct the balance of their small business pool if they have an aggregated turnover of less than $10 million.

Without the extensions, the instant asset write-off threshold of $150,000 would have reverted to the $1,000 threshold and eligible only to small businesses with a turnover of less than $10 million after June 30 2020.

4. Maximise Deductible Super Contributions

businesspeople working in finance and accounting analyze financi

The concessional superannuation is $25,000 for all individuals. Do not go over this limit, or you will pay more tax.

For the contribution to be counted towards the employee’s contribution cap for that financial year, it must be received by the fund by June 30.

Note that employer super guarantee contributions are included in these caps. Therefore, where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.

5. Tools Of Trade / FBT Exempt Items

The purchase of Tools of Trade and other FBT exempt items for business owners and employees can effectively buy equipment with a tax benefit.

Items that can be packaged include handheld/portable tools, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.

6. Make Voluntary Super Contributions

Pre-tax super contributions, known as concessional super contributions, are taxed at 15%. This is lower than the lowest income tax rate of 19% and company tax rate of 27.5%, and you can claim a deduction on contributions.

The concessional super contributions cap is $25,000 for individuals. However, suppose you plan to claim a deduction for your concessional contributions. In that case, you’ll need to provide a ‘Notice of intent to claim or vary a deduction for personal super contributions forms to your super fund.

7. Pay Employee Superannuation

To claim a tax deduction for the current financial year, you need to ensure that the super fund receives your employee superannuation payments or the Small Business Superannuation Clearing House (SBSCH) by June 30.

It would be best if you avoided making last-minute superannuation payments as processing delays may cause them to be received after year-end. 

If, for any reason, you end up having to make last-minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions.

8. Defer Income

During tax time, businesses should minimise income and maximise expenses to reduce assessable income and tax.

Depending on your situation, you may be able to defer some income to reduce your taxable income for the 2019-20 financial year.

For example, if you delay sending an invoice until July 1 2020, the invoice amount will count towards your taxable income for the next financial year rather than this year.

To do this, it’s all about timing your income and expenses, i.e. you’ll want to defer income into the following tax year. While you’ll still have to eventually pay tax on what you’ve earn’t, in the meantime, you’ll have saved money, and that is yours to use now, and however you see fit.

To do this, it is best to use accrual accounting (not cash accounting) and to keep on top of your income and expenses; we advise using online accounting software such as Xero.

9. Bring Forward Expenses

In the same vain as point seven, you’ll want to bring forward expenses into the current tax year. Purchase consumable items before June 30. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now to get the deduction sooner.

10. Review Your Debtors

You can claim a tax deduction on unrecoverable debts regardless of the year in which you invoiced them, as long as you can show that the debt was initially included as income and has been written off by June 30.

Document your decision to write off the debt, as this can be used as evidence that the debt was written off before EOFY.

11. Repairs And Maintenance

Make payments for repairs and maintenance (business, rental property, employment) before June 30.

12. Defer Investment Income And Capital Gains

If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER June 30.

13. Motor Vehicle Log Book

Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least 12 weeks. The start date for the 12 weeks must be on or before June 30. 

You should make a record of your odometer reading as of June 30 and keep all receipts/invoices for motor vehicle expenses.

An alternative (with no log book needed) is to claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

14. Don’t Forget The Small Business Income Tax Offset

The Small Business Income Tax Offset offers small businesses a tax offset of up to $1,000 per year.

This offset is currently available for unincorporated small businesses with an aggregated turnover of less than $5 million from the 2016-17 financial year. 

This can be particularly beneficial for businesses in the start-up phase. In addition, small business owners don’t need to apply for the offset as the ATO will work this out from their tax lodgement.

15. Investment Property Depreciation

business partnership discussing using calculator review balance sheet annual with holding pen using laptop computer calculating budget audit integrity before investment concept

If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.

16. Private Company (“Div 7A”) Loans

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by June 30. 

Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.

17. Year-End Stocktake / Work In Progress

If applicable, you need to prepare a detailed Stock Take and Work in Progress listing on June 30. Then, review your listing and write off any obsolete or worthless stock items.

18. Write Off Bad Debts

Review your Trade Debtors listing and write-off all bad debts before June 30. Prepare a management meeting document listing each bad debt as evidence that these amounts were written off before year-end and enter these into your accounting system before June 30.

19. Small Business Concessions – Prepayments

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE June 30 and obtain a full tax deduction in the current financial year.

20. Trustee Resolutions

Ensure that the Trustee Resolutions are prepared and signed before June 30 for all Discretionary (“Family”) Trusts. Chat to us for more information about these resolutions.

21. Write Off Damaged Or Obsolete Stock

If your business holds stock, consider reviewing your stock valuation and writing off any stock that’s damaged or obsolete.

Complete a stocktake, and keep in mind that stock can be valued at either cost price or net realisable value (it’s expected selling price), whichever is lower.

Has COVID-19 impacted you?

If the COVID-19 crisis has negatively impacted your business, the ATO may be able to offer assistance by:

  • Giving you extra time to pay your tax bill or lodge tax forms such as activity statements
  • Providing tax-free cash flow boosts of between $20,000 and $100,000 to eligible businesses
  • Setting up a tax payment plan based on your circumstances, including an interest-free period
  • Revoking penalties or interest charged for the period your business has been affected.

While these tips could help you maximise your small business tax deductions and boost your return, it’s a good idea to talk to a tax advisor or accountant who can offer professional advice tailored to your business.

22. Small Business Capital Gains Tax Concessions

When a business sells an active asset and makes a profit, it must pay capital gains tax (CGT) on this capital gain in the same financial year.

Small businesses CGT concessions can significantly, sometimes completely, reduce the CGT a small business must pay for an active asset. 

Four key concessions are available for eligible small businesses, including the 15-year exemption, 50 per cent active asset reduction, retirement exemption, and rollover.

23. Deducting ‘bad’ Debt

An unpaid debt to a business is deemed a ‘bad’ debt. However, this type of debt could be a tax deduction for the business if it was included in their assessable income in the current or previous income year.

Several conditions must be met to qualify as a bad debt. It can be written off as a tax deduction if it does qualify.

24. Increase Depreciation Deductions

Small business owners must claim depreciation deductions to maximise their cash flow. If a small business owner is a property tenant, they shouldn’t dismiss claiming depreciation. Commercial tenants can claim all deductions available for their assets and fit-out.

With the increased instant-asset write off available until the end of this financial year, it’s never been easier to claim more this tax time. This write-off allows any business with an aggregated annual turnover of up to $500 million to instantly write off any plant and equipment asset valued up to $150,000.

Business Tax FAQs

accounting

Finance. Accounting documents on the table

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 turnover is less than $50 million, you will qualify to claim certain eligible prepaid expenses in the year they were paid.

Some prepaid expenses that can be claimed in the year they are paid are rent, insurance and subscriptions to professional associations.

Eligible expenses will be payments made for 12 months or less, and the period covered ends in the next income year. 

Your prepaid rent qualifies because the period it covers does not exceed 12 months, and that period will end before the end of the next income year. Therefore, the whole amount will be claimable on your tax return this year.

2. I keep a room set aside for a home office and would like to claim some expenses.

If a taxpayer carries out all or part of their employment activities from home and has an office set aside to do the work, some of the running expenses can be deducted. A diary should be kept for a minimum of 4 weeks stating the hours the office was used for work-related purposes.

From July 1 2014, the Commissioner’s rate of 45 cents per hour (increased from 34 cents per hour allowed in the 2014 year) can be claimed for the home office’s hours. Only running expenses (electricity, heating and depreciation of office equipment) can be claimed for home office unless the home is being used as a place of business.

Where a home is a place of business (and is easily identified as such – for example, a separate entrance, signage, clients/customers coming to set area of your home etc.), deductions can be claimed on occupancy and running expenses, including:

  • mortgage interest
  • rent
  • house insurance
  • council rates
  • insurance
  • repairs
  • cleaning
  • pest control
  • maintenance
  • decorating
  • telephone
  • heating
  • lighting.

3. I am self-employed and have paid personal superannuation contributions all year. What can I claim?

Provided that you satisfy the eligibility criteria, you will be able to claim a deduction for the superannuation contributions you have made to a complying superannuation fund or retirement savings account.

To do so, you must be fully self-employed, or no more than 10% of your assessable income (including Reportable Fringe Benefits and Reportable Superannuation Contributions) is from an employer.  

You must also have first notified your superannuation fund of your intention to make a claim and received a confirmation.

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?

Most Australian businesses can claim fuel tax credits for running machinery, plant, equipment and heavy vehicles used in running that business.

To be eligible to make a claim, the business must be registered for GST, and the claim should be made on the Business Activity Statement (BAS) that is required to be lodged.

The amount that can be claimed will depend on the type of fuel and its use. Fuel tax credits are not available where alternative fuels (e.g. LPG) are used.

5. I have started my own business and wonder if I need to register for GST.

Australian businesses with an annual turnover of $75,000 or more must register for GST. 

If your business has a lower turnover, you are not required to register, but you may do so if you wish. You will only be required to charge your customers GST if you are registered. Your local office can assist you with your application to register for GST.

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