In 2022 Tax Tips

Small Business Taxation Tips In Australia

Are you a small business owner in Australia? If so, it’s important to be aware of the different tax laws that apply to you. In this blog post, we’ll provide some tips on how to stay compliant with Australian tax regulations. 

We’ll also discuss some of the deductions and exemptions available to small businesses. So if you’re looking for information on small business taxation in Australia, you’ve come to the right place!

Small businesses in Australia are subject to various taxation schemes depending on their size and structure. This can be confusing for business owners, who may not know which scheme applies to them or minimise their tax burden. In this blog post, we’ll outline the different types of small business taxation in Australia and provide some tips on how to stay compliant. 

The taxation system can be confusing, so here are some tips to help you stay on top of your obligations. In addition, different types of taxes may apply to your business, so make sure you understand the ones that are relevant to you. 

You also need to keep track of your income and expenses, which will affect how much tax you have to pay. If you need assistance with your tax return, don’t hesitate to seek help from a professional. 

As a small business owner in Australia, you are likely aware of the various tax laws and regulations that must be followed. However, even with this knowledge, it can be not easy to stay on top of everything and make sure you are taking all the proper deductions.

Small businesses are the backbone of many economies. In Australia, small businesses account for around 99% of all businesses and employ more than half of the workforce. As a small business owner in Australia, it’s important to be aware of the tax obligations and deductions you’re entitled to. This article provides an overview of some important taxation tips for Australian small businesses.

Did you know that you have specific taxation responsibilities as a small business owner in Australia? If you’re not sure what these are or how to meet them, don’t worry – this article will outline the key points. 

We’ll also provide some helpful tips on making tax time a little less stressful. So whether you’re relatively new to running your own business, or you’re just looking for a refresher course, read on for all the information you need!

You can use several tips and tricks to make sure you’re taking advantage of all the deductions and allowances available to you. In this blog post, we’ll provide an overview of the Australian taxation system for small businesses and offer some advice on staying ahead of the game.

Are you a small business owner in Australia dealing with your first tax return? It can be daunting, but don’t worry – we’ve got some tips to help you out. 

Keep reading to learn more about Australian small business taxation basics, including what deductions you can claim and how to file your return. With a little knowledge and organisation, it’s easy to stay on top of your taxes and keep your business running smoothly. 

Happy filing!

Thanks for reading, and we hope this information is helpful!

What Is A Small Business?

From a tax perspective, a small business is usually defined as an annual turnover of less than $10 million, except concerning the small business CGT concessions, where the turnover threshold is just $2 million.  

To stop businesses splitting activities so they can slip under the $10 million threshold and gain access to the various tax concessions, 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.

What You Can Claim On Your Small Business Tax Return

tax return financial form concept

Struggling to know which business expenses you can claim as a tax deduction for your small business? Unfortunately, it can be tricky to know which deductions you can claim when it comes to doing your business tax return. 

As 60 per cent of our branches are owned and managed by small business owners, at BOQ, we understand that every little bit helps when it comes to doing your business tax return. 

To help take the pressure off, the small business banking specialists at BOQ have shared this summary of some examples of expenses you can claim as tax deductions. 

Small business tax deductions available

Small business owners can claim a deduction for most costs incurred in running a business on their annual business tax return – as long as those expenses are directly related to how you earn assessable income. 

From travel expenses to operating a small business from home, here’s an explanation of some things you can claim on your business tax return.

1. Advertising And Sponsorship

Costs to promote your brand and garner publicity for your business are deductible and can be claimed, as can advertising or sponsorship to sell ‘trading stock’ and hire staff. However, ensure that the costs incurred do not fall within the definition of ‘entertainment’, which is not usually deductible.

2. Bad Debts

A debt that is unpaid and deemed to be a ‘bad’ debt is an allowable deduction as long as it was included as assessable income in the present or even a previous income year and that it is written off as bad (uncollectable) in the same year that a deduction is claimed.

3. Borrowed Money

Expenses incurred to get the borrowed funds can be claimed as a deduction, the proviso being that the money must be used to produce assessable income. 

These expenses can include legal costs, registration fees, valuation costs, fees to guarantee an overdraft and any commissions paid. But you may have to spread the deductions over more than one year, depending on the extent of the expenses, to cover the loan period. 

These deductions are separate from the interest incurred on the borrowed funds, which is also deductible if the borrowed money is used to produce income.

4. Business Travel

Travel for business purposes can usually be claimed. Keep all receipts and your itinerary or diary and, of course, airline tickets. Note the nature of the travel, its purpose, and where, when, and for how long (and look out for any personal activities that are mixed in, as these expenses are non-deductible).

5. Car Expense Deductions

You can claim a full deduction for any expenses your company incurs while running a vehicle, leased or owned, provided the vehicle is used only for business purposes. 

If your business operates as a sole trader or partnership, you can claim certain proportions of deductions for vehicle expenses, but they are subject to substantiation rules.

6. Fringe Benefits

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

You can generally claim a deduction for any costs involved with providing a fringe benefit to an employee.

7. Insurance

Workers compensation insurance premiums are deductible, as are insurance costs for fire, business-use cars, public liability, theft and loss of profits.

8. Plant And Equipment (Depreciating Assets)

Larger items like cars or buildings can be claimed over time as depreciating assets. And you may also be able to claim (either immediately or over five years) certain capital costs in setting up or ceasing a business, as long as an outright deduction can’t be claimed for that expenditure.

9. Repairs, Replacement, Maintenance

A deduction is available for the upkeep of machinery, tools or premises used to produce assessable income (provided they are not ‘capital’ costs). 

These deductions include painting, plumbing and electrical maintenance, upkeep to windows and fences, guttering and machinery maintenance. Generally, it means fixing defects, not replacing an item, and does not include improvements or work done immediately after acquiring an asset.

10. Superannuation Contributions

You can claim a deduction for a contribution made to your super fund if self-employed. However, care must be exercised if you also have some earnings from employment upon which the employer has paid super contributions. 

Contributions to an employee’s fund should also be deductible. This is because employers legally must contribute to employees’ super under the superannuation guarantee laws.

11. Salary And Wages

Operating as a trust or a company means you can claim a deduction for salary paid to employees or yourself, provided the salary is related to duties connected with the business. 

Partnerships can’t claim for salary paid to a partner, but a deduction is available for salary paid to other employees. Sole traders can’t claim for salary paid to themselves (and you can’t claim for amounts taken from the business for private purposes).

12. Tax Management Expenses

Managing your business tax affairs can cost, and you can claim these as deductions. This includes paying a bookkeeper, having a tax agent prepare and lodge tax returns and activity statements, attending to a tax audit or the costs of appealing or objecting to an assessment.

13. Telephones

For a telephone you use for business only, you can claim calls and rental, but not installation. If the phone is used for both business and private calls, you’re able to claim all business calls and a proportional part of the rental. An itemised phone account will guide this, but you can also base the claim on a representative four week period to get an average rate for the whole year.

Business travel expenses

Suppose you’ve travelled to attend a business conference or taken an international business trip to meet with a manufacturer or customer. In that case, the good news is that you can typically claim those travel expenses as a deduction on your tax return

However, be mindful that all travel expenses you claim must relate to producing your business’ assessable income. Further information on business travel expenses is available on the Australian Taxation Office (ATO) website here.

While travelling for business, small business owners can typically claim the following:

  • Transport costs including train, bus, taxi (including Uber and other rideshare services) and airfares
  • Accommodation and meal expenses for overnight business travel, and
  • Certain motor vehicle expenses.

It is also important to note that special rules apply to each category of these deductions as follows:

1. Private travel 

Suppose the travel is partly for private purposes and includes private activities (for example, stopping at an unrelated destination on the route home or extending your trip to have a holiday). In that case, you may have to pay fringe benefits tax (FBT) on that expense. FBT relates to benefits provided to employees such as extended travel, items for personal use and gym memberships.

2. Overnight business travel expenses

For overnight business travel, there are particular record-keeping requirements:

  • Up to five nights– you’ll need to retain documentation such as tax invoices, tickets; boarding passes as evidence of travel expenses; and
  • Six or more consecutive nights – you’ll need to retain documentation as mentioned above for all expenses and keep a travel diary of the particulars of all business activities you undertake (including details of what the activities were and the dates, times, locations etc.).

Further information is available on the ATO website.

3. Motor vehicle expenses

As a small business owner, you can claim a tax deduction for certain costs concerning motor vehicles – cars and other vehicles – used in running your business. The expenses you can claim – and how you calculate them – depend on several factors, including:

  • Do you own or lease the vehicle?
  • How the vehicle is used – is it solely a business car or used for private purposes?
  • The structure of your business, and 
  • The type of vehicles you use in running your business.

Once established, you can typically claim the following types of deductions, to the extent that the vehicle is being used for business purposes, on your business tax return:

  • Vehicle repairs and servicing
  • Fuel and oil
  • Interest on a business car loan
  • Business car leasing payments
  • Business vehicle insurance premiums
  • Business vehicle registration, and
  • Tax depreciation if you own the vehicle outright.

If you use the vehicle for business and personal purposes, you will need to apportion the costs between business and personal use, and only the business portion will be deductible.

Make sure you always keep receipts, tickets and itineraries for all business travel as part of your business tax return.

General operating expenses

Small business owners can generally claim a deduction for expenses related to your business’s running.

These can include costs relating to:

  • Stationery
  • Advertising, marketing and sponsorship
  • Website maintenance and other online business expenses
  • Public relations and social media
  • Waste removal and recycling
  • Business loan interest rates
  • Business name registration fees, and 
  • Small business accounting costs. 

Generally, if you need to spend money on your small business to generate income, you can likely claim a deduction for the expense.

Other expenses you may be able to claim include:

  • Working with children checks
  • Books, journals and news subscriptions, and 
  • Compulsory uniforms and certain protective clothing, including dry cleaning costs.

To claim any general operating expenses relating to your small business, you must be able to show that you incurred the expense to earn an income for the business. Filling in an expense log with the time, date and reason for purchase is a great way to prove business-related costs.

Home-based businesses

Operate a small business (including an online business) from home. You may be able to claim tax deductions for some of the costs relating to the areas of your home (such as a home office or study) that you use for business purposes. These expenses are often categorised as follows:

  • Occupancy expenses – including mortgage interest or rent, council rates and home insurance premiums, and
  • Running expenses – similar to operating expenses, running costs relate to costs such as gas and electricity, repairs to furniture and furnishings, phone, internet and cleaning expenses.

However, what you can claim will be dependent on your personal circumstances and how you operate your business from home. Further information is available on the ATO website to help home-based small businesses work out what you can claim as a tax deduction.

It’s worth noting that small business owners running a business from home may also have to pay capital gains tax when the home is sold. This is based on the portion of the gain related to the home section that was used for business purposes (such as a study).

Don’t Blur The Lines Between The Company’s Money And Your Own

accounting

Many small businesses get caught by the so-called ‘deemed dividend’ rules. Under tax law, loans and advances to private company shareholders or their associates are deemed taxable unfranked dividends for the shareholders. 

These rules intend to stop the profits of private companies from being distributed to shareholders as tax-free “loans”.  

So, if you find yourself borrowing money from a company of which you’re a shareholder, try to ensure those borrowings are repaid by the time the company’s tax return for the year is due. 

If that isn’t possible, declare a dividend and treat the amount as income, in which case, the dividend would be franked if applicable.

Alternatively, enter into a complying loan agreement, complete with a commercial interest and capital payments and a defined loan period.

Consider the tax consequences of the private use of company assets for less than market value because the deemed dividend rules can also catch this. 

The amount of the deemed dividend is equivalent to the arm’s length price that would have been paid for the use of the assets, less any amount actually paid for the use.

It’s also worth considering transferring the asset to the shareholder instead of a cash dividend, a so-called “in-specie “Ÿ dividend. Whether that’s cost-effective will depend on the market value of the asset. 

Alternatively, if the shareholder has previously lent money to the company, the asset could be transferred to the shareholder as repayment of that loan, subject to valuation.

Important things to remember

1. Make the most of the Temporary Full Expensing (TFE) incentive

Did you know that under the Federal Government’s TFE incentive, you may be entitled to immediately take a tax deduction for the full cost of depreciating assets you have purchased? 

The TFE incentive applies to eligible assets purchased and installed ready for use between 7.30 pm on 6 October 2020 and 30 June 2023. If you purchased your asset before 6 October, you might still be entitled to a tax deduction under the older Instant Asset Write Off scheme. 

This can help your cash flow by reducing the amount of tax you pay in the first year you buy and use the asset, rather than taking a tax deduction over the asset’s life, which could be several years. Talk to your accountant about your eligibility for this scheme and if this is right for your personal circumstances.

2. Keep records 

From tax invoices to plane tickets, business credit card statements to business car leasing statements and business bank account fees, you need records to back up any claim you make in your business tax return. So keep your records organised and in a safe place so when the time comes, you’re not on the back foot.

3. Enlist the help of the small business experts

When it comes to something as complex as doing your business tax return, it pays to enlist the help of a good tax accountant to help you claim the right expenses and get the most out of your return. 

Tips From Small Businesses

1. Harness your ‘keystone habits’

Entrepreneur and blogger James Clear say we should find the one or two habits or routines that make everything else fall into place. “Improving your lifestyle and becoming the type of person who ‘has their act together’ isn’t nearly as hard as you might think.”

2. Practise mindfulness

Freelance journalist and editor Jodie Macleod says it increases productivity, reduces stress and improves memory and focus. “Mindfulness is when you are aware of your thoughts, feelings, sensations, breath and everything occurring in the present moment, without attaching judgment to those observations.”

3. Every setback is a stepping stone to success

Lucinda Lions from branding agency Slogan Creator says it’s important to stay positive wherever possible and see feedback, not failure. “I remind myself tomorrow is a brand new day, a new opportunity to think differently and make better choices.”

4. Hire from within your networks

When Sarah Wilson from I Quit Sugar began feeling overwhelmed with work, she decided to get an assistant. She put a call out to her community, knowing taking someone on would involve sacrifice. Five years later, they still have a successful working relationship. “Start out small and then leave the invitation open for expansion.”

5. Keep it manageable

Kate James, start-up coach at Total Balance, says it’s important to remember that it’s not all about non-stop growth — bigger isn’t better if you’ve stopped enjoying what you do. “You need to define your version of success. Mine is that I need to love my business.”

6. Know when to work for free

Vanessa Emilio from Legal123, says sometimes working for free is worth it. “‘Free’ doesn’t mean offering an entire job or product for free. It could mean a free initial consultation, a free component of a project or complimentary muffin with every coffee.”

7. Stay excited and believe in your business

SEO copywriter and consultant Kate Toon says start-ups should think about clients’ needs and possible issues and create rational responses to persuade them your business is the solution. “Inject warmth, professionalism and even humour, where appropriate. Being human beats boring every time.”

8. Learn to say no

Recognise when a client has unrealistic expectations and nip it in the bud early, or consider referring them on, says author and media commentator Andrew Griffiths.

Try a formal, structured response and keep returning to it. For example, try, “Thank you for the opportunity, but we are so heavily committed we can’t give your project the time and attention it needs.”

9. Create fans

If you’re on a tight marketing budget, think about how you can trigger word-of-mouth interest. Warren Harmer of The Business Plan Company mentions a small florist that did this brilliantly by 1) Offering quality; 2) Providing value; 3) Inspiring team members to love their job and clients, and 4) Creating a physical environment that excited their market.

10. Turn competition into inspiration

Life coach Kathryn Hocking suggests you research what competitors are doing to help identify what makes you unique. Your relationship doesn’t have to be adversarial: they could be a mentor, partner or friend. “Focus on your own purpose and connect with peers that have similar values and who inspire you to greater levels of success.”

11. Know when to take a ‘dream detour’

Sometimes it’s hard to know whether to grab a fresh opportunity or stick to your path. Business mentor Lynda Bayada says you need to outsmart your head so you can listen to your heart. “Give yourself space and trust yourself. And you’ll find that’s half the battle won.”

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