It’s that dreaded time of year for small business owners – but rest assured, we’ve got some great tips to help you get through tax time with a minimum of fuss.
Tax time – two words that strike fear into the hearts of a lot of Australian small business owners. It’s a time of paper trails, frantic hunts for receipts and oftened accompanied by late nights and that terrible feeling in the pit of your stomach that you’ve forgotten something vital.
However, tax time doesn’t need to be stressful at all – and even if you are a little bit behind the eight ball this year, there are steps you can take to make life easy for you, and keep the tax man from knocking on your business’ front door.
Here are a set of top tips for you to consider as we ring in the new financial year.
$20,000 instant asset write-off
One of the best tools at your disposal at tax time is the federal government’s $20,000 instant asset write-off scheme, which can really help to minimise your tax bill before the end of the financial year.
The accelerated depreciation measure currently applies to all asset purchases up to the value of $20,000 for businesses that have annual turnover of up to $2 million. Businesses can immediately write-off the full value of the asset and can be used multiple times, effectively reducing the amount of tax a business will pay on an asset faster.
Importantly, the scheme extends to as many eligble assets as you want to use it on, provided that value of each is less than $20,000. However, to qualify for the scheme, the asset needs to be purchased, installed and up and running before June 30.
That doesn’t mean you should go on a free-for-all spending spree – it’s important to remember that you shouldn’t waste your money if you don’t need the item. While you will get an immediate taxa deduction, it will only be at the marginal tax rate – and a spending spree could leave a gaping hole in your bottom line.
Make the right Deductions
Running a small business often means being detail-oriented – which comes in handy at tax time. SMB owners should be well-placed to understand what kinds of tax deductions are applicable to their circumstance… and if you’re not, then you would be well served by speaking to a taxation accountant to find out what you can claim, and how to claim it.
Deductible expenses for SMBs that operate out of a home can include the associated costs, as well as expenses like maintenance and repair. You may also be eligible to claim portions of your monthly costs such as rent and utilities, such as your phone bill and power costs.
If you’ve done any business-related travel throughout the year, then there’s a good chance that those expenses will be deductible and can help reduce your tax liability. Make sure that the travel meets the relevant requirements, and that you have valid receipts or other proof of payment (such as an itemized credit card statement) to back up your claim.
The rules surrounding deductions for your superannuation can be a bit tricky to figure out – so, again, if you’re in any doubt, speak to your tax accountant to find out what the rules are, and how they apply.
This year, for people under the age of 50, there is a superannuation concessional contribution limit, which has been set at $30,000. If you’re over the age of 50, the limit is higher, at $35,000.
If you’re over the age of 65 and you still want to make contributions to your superannuation, you need to bear in mind that you will need to meet the ATO’s ‘work test’. This year, it is set at 40 hours of paid work over a period of 30 days.
Putting extra money from your pre-tax pay into your super account makes good sense, as those contributions are currently taxed at just 15%, rather than the marginal tax rate you would pay if you kept that money as straight income.
If you are with a self-managed super fund (SMSF), you can also get some great benefits by pushing any excess funds that you have into your superannuation. Bear in mind, though, that there is a cap on non-concessional or after-tax super contributions.
The cap is currently set at $180,000 – but you can bring up to three years’ worth of contributions forward, up to a total of $540,000. Importantly, this information could be different by the time you get your paperwork sorted out, depending on who wins the upcoming federal election.
The coalition recently announced that it plans to change the rules for high income earners, by tightening up their superannuation concessions. Again, if you are in any doubt at all, consult your taxation accountant to make sure you’ll be getting the benefits that you’re eligible for.
SuperStream and other Super
The ATO’s new SuperStream program, which allows SMB owners to make super contributions electronically, has had a few teething issues, according to the tax office.
That has prompted a delay by a number of small business owners to make the required changes to how they handle their super, and according to the ATO, there are still 35% of businesses that are yet to make the switch.
The good news here is that if you’re not SuperStream compliant, you now have more time up your sleeve to get that rectified. The ATO has extended the deadline for SuperStream compliance.
“Through the ATO’s ongoing engagement with small businesses, we understand some need more time to implement their SuperStream solution or to work with a SuperStream expert to find a solution that suits their needs,” ATO deputy commissioner James O’Halloran said in a statement.
“The ATO will not be taking compliance action against small businesses who miss the 30 June deadline and will continue to work to support them to get SuperStream ready,” he continued.
“By providing this flexibility, small businesses will have another four months to make the changes and ensure they are compliant by 28 October.”
Work vehicle log books
This one’s a hot tip from a source who is ‘in the know’ with the ATO, who tells Nett that the tax office will be digging into your work vehicle log books to make sure everything is above board.
The log book that you use to keep track of your vehicle expenses is likely to come under increased scrutiny this year, whether it’s part of the fringe benefits package for employees, or if you’re the one benefitting from the scheme.
Make sure you have all your paperwork up to date, and be careful with how the information is portrayed in the logbook. Nice, round figures in a logbook is something of a red flag for the ATO, and practically an invitation for them to dig deeper into your documents, our source says…
Writing off your bad debts
If your small business is carrying any bad debts from this financial year that you’re unable to recoup, tax time is definitely the right opportunity to write them off.
However, it can be a tricky business getting the paperwork in order, and failure to get it right can mean you are unable to get free of the burden. Just like any steps that you take to minimise your tax liability, writing off bad debts requires a solid paper trail.
First of all, the debt you are owed needs to appear as part of your business’ assessable income, and that the decision to write off the bad debt is documented as well, along with all of the avenues you have explored in order to recoup the debt.
It’s also worth noting that any decision to write off bad debt needs to be made by someone who occupies a suitable position within the company’s structure, such as a director – or someone who is authorised to make decisions like this one.
If you have been spending money on self-education that is relatable to your business this year, you are probably going to be eligible to claim those expenses as a tax deduction.
Items that are tax deductible include tuition fees, stationery and text books, as well as any depreciation from other study-related assets, including computers and printers.
Anything you claim will need to be directly related to either improving or maintaining the current skillset that you use for your role. You can also claim it if the education you are undertaking could set you up for a promotion or raise.
Once again, this can be a tricky part of the tax system to navigate, so if you have any doubts about what is and isn’t eligible, it’s time to talk to an expert and make sure everything you’re asking for is above board.
You’re not alone
We know we’ve mentioned this quite a lot on the way through these top tips, but the importance of dotting your “Is” and crossing your “Ts” is paramount when dealing with the Australian Taxation Office.
Incorrect paperwork could cause delays in processing your claims, or – even worse – a financial penalty and possible criminal liability, should the ATO decide that you were intentionally trying to defraud the Commonwealth.
The penalties for tax avoidance can be extremely hefty, and have claimed the scalps of many small business owners who got things wrong over the years.
Your best bet is, of course, to double-check that you are eligible for everything that you decide to claim, and that your books are in solid order before you file your taxes.
If there is any doubt at all in your mind, you can find a goldmine of information on the ATO website. If you’re still unsure about whether you’re getting it all correct, then a visit to a tax accountant and spending a few hundred dollars for their help could save you thousands of dollars in penalties – and could even keep you out of jail.
And, as a final quick tip – make sure you pay your taxes on time. Late fees from the ATO can accrue with alarming speed, and seriously dent your cash flow.
If you are unable to meet your responsibilities to the ATO on time, remember that there is no shame in putting your hand up and letting them know. The ATO can organise structured payment plans for anyone behind on their tax – but it’s up to you to make the call if you need a little help.