In 2021 Tax Tips

Taxation Tips For Small Businesses In Australia

As a small business owner in Australia, you’re probably aware of the importance of staying on top of your tax affairs. However, with so many complex rules and regulations to consider, it can be tricky to know where to start. 

This article provides an overview of the key taxation issues faced by small businesses in Australia, as well as some tips for reducing your tax bill. So whether you’re just getting started or you’re looking for ways to optimise your tax strategy, read on for helpful advice.

Tax Time is a dreaded time of year for many people, but it can be particularly tricky for small businesses in Australia. There are so many things to consider when tax time rolls around, from deductions and allowances to GST and company payments. If you’re not sure where to start, don’t worry – we’ve put together a guide to taxation tips for small businesses in Australia.

Small businesses in Australia have a few more things to think about than individuals when it comes to taxation. This can seem daunting, but it’s manageable with a bit of know-how and organisation. In this blog post, we’ll outline some of the key tips for small businesses regarding taxation. Read on to find out more!

As a small business owner in Australia, you must comply with several tax rules and regulations. While it can be daunting, knowing what you need to do is crucial for the success of your business. In this post, we provide some tips on simplifying your tax affairs and staying on top of your obligations. So, whether you’re just starting or you’ve been running your business for a while, make sure to read on!

Saving money is always a top priority for small business owners, and when it comes to tax time, there are plenty of ways to reduce your bill. By knowing the right deductions to claim and taking advantage of available tax breaks, you can keep more of your hard-earned cash in your pocket.

Being a small business owner in Australia has its benefits, such as lower tax rates and simplified taxation processes. However, it’s important to stay up-to-date on the latest changes to taxation laws so you can take advantage of all the available tax breaks and deductions. In this blog post, we’ll provide some tips for small businesses on how to save money on their taxes.

You’re probably aware of the importance of staying on top of your taxes. But, unfortunately, tax season can be confusing and complex, especially if you’re not familiar with the regulations. 

This blog post will provide some tips to help make tax season less stressful for small businesses owners. We’ll also outline some common deductions that small businesses can claim. So if you’re looking for guidance on how to file your taxes this year, read on!

As a small business owner in Australia, you’re probably always looking for ways to save money and keep your taxes as low as possible. While there are no definitive ‘right’ or ‘wrong’ methods, there are some tips that can help you stay within the law and pay as little tax as possible. In this blog post, we’ll go over some of the best ways to reduce your taxable income.

Let’s get started!

Best Tips For Small Businesses Leading Into Tax Time

  1. Ensure all superannuation for you and your staff is paid before June 30. You can only claim superannuation as a deduction once it has been paid; therefore, if you want to claim it in the 2022 financial year, you need to pay in the coming weeks. 
  2. Write off any bad debts that you have in your receivables list. If you are certain that you will not be paid and it’s uneconomical to pursue, write off the bad debt before or on June 30 to ensure you claim the deduction in the 2022 year. 
  3. Make use of the Instant Asset Write-off. For example, if you need any vehicles, machinery, office equipment or tools, purchase these before June 30, so you claim the total cost of the asset in the 2022 financial year. 
  4. Prepay expenses such as insurance and business subscriptions to bring forward the deduction and claim these in the 2022 tax return. 
  5. Plan ahead for the next financial year. Before the end of this financial year, it is a great time to review your business structure and possibly take advantage of income splitting opportunities you may be missing out on. It’s also a great time to review your budgets and plan out expenditures so you can manage your business cash flow and tax obligations for the next financial year. 

Tips to assist in avoiding ATO scrutiny and dealing with your motor vehicle FBT obligations: 

  • Always declare all income earned by your business, including cash sales. 
  • Have your staff keep a logbook to record business travel in work vehicles. 
  • Finally, prepare a workplace policy regarding the private use of company vehicles. 
  • Register your business for Fringe Benefits Tax if you own a company vehicle or provide employees and associates with a work vehicle. 
  • Lodge & pay your FBT obligations on time with the ATO. 
  • Consider paying your employees a car allowance rather than providing them with a company-owned vehicle. 
  • Ensure all tax invoices/receipts are kept on file for vehicle-related costs. 
  • Consider applying the Employee Contributions Method to car benefits whereby employees contribute towards the private use of their vehicle. This is a great way to reduce your business FBT exposure.

Tips on Small Business Tax Deductions and What to Claim

1. How Tax Deductions Work

You can claim most business expenses as tax deductions to reduce your taxable income when you do your tax return.

The Australian Taxation Office (ATO) calculates your taxable income using this formula:

Assessable income – tax deductions = taxable income

Most money you get from running your business is assessable income (income subject to tax).

2. Expenses You Can Claim As A Deduction

You can claim most expenses involved in running your business. Just make sure:

  • they relate directly to earning your income
  • the expense must have been for your business, not for private use
  • if the expense is for a mix of business and private use, you can only claim the portion that is used for your business
  • you have records to substantiate what you claim

You may be able to claim deductions for the following types of business expenses:

  • motor vehicle expenses
  • home-based business
  • business travel expenses
  • workers’ salaries, wages and super contributions
  • repairs, maintenance and replacement expenses
  • other operating expenses
  • depreciating assets and other capital expenses
  • carbon sink forest expenses

Go to the ATO’s Business tax deductions information for details about what, when and how you can claim your deductions.

If you’re a contractor or a consultant, your personal services income may affect the deductions you can claim.

Want advice for your particular circumstances? Contact your accountant, business adviser or the ATO.

3. What To Deduct And Claim On Tax?

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The skies are dark, the sales are on, and every ringing phone strikes fear into the hearts of Australia’s accountants.

Yep, it’s that time of year again — tax time.

For the handful of small business owners who are confident across their finances and tax obligations (must be nice), the end of the financial year is probably like any other month. 

However, for the vast majority of taxpayers, it’s a scramble to gather faded receipts and furiously Google what deductions can be claimed as the dreaded July 1 deadline approaches.

To help take some of the pressure off, we have compiled a list of tax tips to help you get your affairs in order and your claims perfected before it’s too late.

The small business sector has variously been described as the engine room of the economy and the biggest employer in the country – and it’s not hard to see why. 

Recent research undertaken by the Council of Small Business Organisations of Australia (COSBOA) showed that small businesses generated 5.1 million jobs, or around half of private-sector employment. 

The Tax Office says that there are about 3 million small businesses in Australia, including primary production concerns, which represents around 96% of all business.

With all the responsibilities small business owners have, it’s easy to overlook work deductions that could have a huge impact on reducing your taxes.

Research from cloud accounting firm Xero reveals that 40 per cent of Australian small business owners are unclear what expenses qualify for tax breaks. It’s not surprising, given that eligible deductions can change from year to year and vary depending on an entity’s structure.

The Australian Tax Office’s small business deductions list is lengthy, but even spending a few minutes reviewing it could save you a small fortune at tax time.

4. Deductions For Small Business

You can claim a deduction for most costs you incur in running your business, for example, staff wages, marketing, and business finance costs.

Remember – you can’t claim private expenses, and make sure you keep records to support your claims.

What business travel expenses can I claim?

If you or your employees travel for business, you can claim:

  • airfares, train, tram, bus or taxi fares
  • accommodation costs and meal expenses for overnight business travel – fringe benefits tax may apply for some employee travel expenses.

Can I deduct the cost of some assets straight away?

If you use the simplified depreciation rules, you claim a deduction immediately for each asset first used or installed ready for use, up to the following thresholds:

  • $30,000, from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
  • $25,000, from 29 January 2019 to 7.30pm (AEDT) on 2 April 2019
  • $20,000, before January 29 2019.

What can I claim if I have a home-based business?

If you run your business at your home or are based from home, you can claim the business portion of some expenses, including mortgage interest and electricity.

You may have to pay capital gains tax (CGT) on the business portion and declare it in your tax return if you sell your home.

5. Claiming A Tax Deduction For Business Travel Expenses

As a business owner, the general rule is that you can claim deductions for expenses if you or your employee are travelling for business purposes. A travel diary is:

  • compulsory for sole traders and partners in a partnership to record overnight business travel expenses
  • highly recommended for everyone else.

Expenses You Can Claim

Your business can claim a deduction for travel expenses related to your business, whether the travel is taken within a day, overnight, or for many nights.

Expenses you can claim include:

  • airfares
  • train, tram, bus, taxi, or ride-sourcing fares
  • car hire fees and the costs you incur (such as fuel, tolls and car parking) when using a hire car for business purposes
  • accommodation
  • meals, if you are away overnight.

To claim expenses for overnight travel, you must have a permanent home elsewhere, and your business must require you to stay away from home overnight.

If you are entitled to goods and services tax (GST) input tax credits, you must claim your deduction in your income tax return at the GST exclusive amount.

Expenses You Can’t Claim

You can only claim the business portion of business travel expenses. It would be best if you excluded any private expenses, such as:

  • a holiday or visit to family or friends that is combined with the business travel
  • the expenses associated with you or your employee taking a family member on the trip
  • souvenirs and gifts
  • sightseeing and entertainment
  • visas, passports or travel insurance
  • travel expenses that arise because you are relocating or living away from home
  • travel is undertaken before you started running your business.

How To Claim Employee Travel Expenses?

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If your employees travel for your business, the business must actually pay for the travel expense to be able to claim it as a deduction. The business can pay for the expense by:

  • paying directly for the expense from the business account
  • paying a travel allowance to the employee
  • reimbursing the employee for their expenses.

Fringe benefits tax (FBT) may apply if your business pays for or reimburses your employees’ travel expenses. However, certain exemptions and concessions may apply to reduce your FBT liability. 

For example, your business may not have an FBT liability if it reimburses an employee for their travel expenses to attend a work conference, which the employee would have been able to claim as an income tax deduction if you hadn’t reimbursed them.

You will be liable for FBT if your employee extends their travel for private purposes, and you reimburse the employee for these private costs. In addition, if your business provides benefits to your employees, you may need to obtain some records from the employee.

If you are the company director and the business pays for private portions of your travel expenses, there may also be Division 7A implications.

There are different considerations if you pay your employees a travel allowance or a living-away-from-home allowance.

6. Claiming A Tax Deduction For Motor Vehicle Expenses

As a business owner, you can claim a tax deduction for expenses for motor vehicles – cars and certain other vehicles – used in running your business.

Types Of Vehicles

Cars (for income tax purposes) are defined as motor vehicles (including four-wheel drives) designed to carry both:

  • a load less than one tonne
  • fewer than nine passengers.

Other vehicles include:

  • motorcycles
  • vehicles designed to carry either
  • one tonne or more (such as a utility truck or panel van)
  • nine passengers or more (such as a minivan).

The motor vehicle must be owned, leased or under a hire-purchase agreement.

If you operate your business as a company or trust, you can also claim for motor vehicles provided to an employee or their associate as part of their employment.

Expenses You Can Claim

You can claim:

  • fuel and oil
  • repairs and servicing
  • interest on a motor vehicle loan
  • lease payments
  • insurance cover premiums
  • registration
  • depreciation (decline in value).

Separate Private From Business Use

If a motor vehicle is used for both business and private use, you must correctly identify and justify the percentage you are claiming as business use. 

The percentage that is for private use isn’t claimable. This is an area where we often see errors made.

You can use a logbook or diary to record private versus business travel.

Travelling between your home and your place of business is considered private use unless you are a home-based business and your trip was for business purposes.

FAQs

1. I have to buy tools and equipment for my job. What can I claim on my tax?

You can claim expenditure incurred in replacing, insuring and repairing tools of the trade that you use for earning your income. However, if the cost of any item is more than $300, it will have to be depreciated (i.e. claimed over its useful life). 

The amount you can claim will depend on what receipts you have kept and to what extent you use them for income-producing purposes. If you are in a situation where you are wondering what you can claim without receipts, you can claim less than $300 without proof of purchase.

2. My job requires me to keep my knowledge up to date, and I buy books and journals. Can I claim them all?

If technical books, trade books or journals are necessary to fulfil your job function efficiently, the cost of their purchase is tax-deductible.

3. Can I claim a deduction for sun protection items?

A deduction is available for outdoor workers who buy sunscreen lotion, sunglasses and hats for use at work. However, the claim must be substantiated and apportioned for private use.

4. I have a job which requires me to be on the road a great deal, and I have to use my own car. What do I need to do to claim a tax deduction for my car?

There are two different methods for claiming work-related motor vehicle expenses, and each has different record-keeping requirements.  

To use the method that ensures you the best claim, it is advisable to keep a logbook and all receipts for expenses (e.g. insurance, registration, repairs, services, tyres, etc.). 

You do not have to keep receipts for petrol as we can work that out for you using an average yearly formula. 

Your logbook should be kept for a minimum of 12 consecutive weeks, and generally, it will be valid for five years unless there are significant changes in your circumstances. You also need to keep the opening and closing odometer readings for each year. 

You don’t need to use the same claim method each year. However, the choice of method should be based on which is more favourable to you and which you have the appropriate records for. 

If you don’t have a current logbook or have not retained all receipts, you will be limited in which method you can choose. However, you cannot claim any car expenses if your car is salary packaged.

5. I am expected to maintain a well-groomed appearance at work. Can I claim these as tax deductions?

Expenditure on personal grooming and haircuts are generally not deductible. However, there are exceptions for some taxpayers involved in the performing arts field.

6. My employer expects me to wear specific clothing for work? What would I be able to claim on my tax?

Compulsory uniforms are generally deductible if they identify you as an organisation or employee in a specific occupation. 

A requirement to wear particular colours is not enough to make the clothing deductible (for example, a waiter is required to wear black and white clothing), nor is a requirement to wear a store’s own brand of clothing (they are still conventional clothing and not tax-deductible). 

Corporate wardrobes are also deductible if certain conditions are met. For example, the uniform design must be registered with AusIndustry. If the clothing is deductible, you may also claim maintenance costs (laundry, dry cleaning, and repairs).

7. I work in a fashion clothing store and am required to wear the clothing that is sold in the shop. The garments have the manufacturer’s logo on as part of the design, and I buy them at a discount. Can I claim the cost of this clothing?

Fashion clothing is not tax-deductible even if your employer requires you to wear it. Because the logo is a part of the design of the clothing and does not in itself identify you as an employee, it will still not be claimable.

8. Am I entitled to claim $300 for work-related expenses as this does not have to be substantiated?

You cannot just claim $300. You must incur any expense before it is claimable. Whilst you may not need receipts for expenditure up to $300, you must have spent the money, which must be relevant to your employment.

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