As we near the end of another financial year, now is the time to start looking at your tax return and if your heart skipped a beat when you heard that, don’t be alarmed, we have a few helpful tips that will get you tax time ready.
1. Get your paperwork in order Having up-to-date records is the most important component of any tax preparation and now (if not already) is the time to get everything in order.Good record keeping is your best friend for efficient business management and will also make life easier if the ATO asks you further questions.
Tax law requires that records be kept for five years, and they should include:
sales receipts
expense invoices
credit card statements
bank statements
employee records (wages, super, tax declarations, contracts)
vehicle records
lists of debtors and creditors
asset purchases.
Records can be kept on paper or electronically, but should be easily retrieved. In our experience, businesses often stumble when asked by the Tax Office to verify transactions by providing supporting records, with the consequence that even “innocent” businesses can find themselves stung by the tax man where they are unable to provide the requested evidence.
2. Deductions
We couldn’t have touched on this article without mentioning deductions. There are many things that a small business can claim against their taxable income. Here’s a quick, but not exhaustive, list of less common deductions include:- Advertising and sponsorship (but not entertainment)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 to hire staff.
Take care to ensure that the costs incurred do not fall within the definition of ‘entertainment’, which is not usually deductible.
– Bad debts – which we will touch on in a moment
– Borrowed money – including registration fees and any commissions paid.
– Business travel; Perhaps you travelled to the beauty expo in sydney last year or any other relevant induct events.
You need to record and document all particulars, but travel for business purposes can usually be claimed. So 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).
– Car expense;
You can claim a full deduction for any expenses your company incurs while running a vehicle, either 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.
– Insurance;
Workers compensation insurance premiums are deductible, as are insurance costs for fire, business-use cars, public liability, theft and loss of profits.
– Repairs, replacement and 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 things like painting, plumbing and electrical maintenance, upkeep to windows and fences, guttering and machinery maintenance. Generally it means fixing defects, not totally replacing an item, and does not include improvements or work done immediately after acquiring an asset.
– Tax management costs;
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.
– Working from home claims;
If your work is done from home, or partly home-based, you can usually claim deductions for expenses such as interest, telephone, insurance and a portion of running expenses like heating, lighting or cleaning.
3. Write off bad debts
You may be entitled to a deduction if you are no longer able to recover amounts your customers owe you. For this reason, you may want to review your receivables prior to 30 June and determine which accounts you have previously included in your assessable (or tax) income that have now gone “bad”. The rules for claiming a deduction for a bad debt are complicated and you should consult with your tax adviser to ensure that you satisfy all the necessary criteria before determining that a debt is bad.
4. Pay your employees’ super the right way
Make sure your employees’ super contributions are in order. You need to pay your employees’ super on time and in a way that is super compliant. You may also want to consider paying the Superannuation Guarantee amount on wages earned to the employees superannuation fund in late June rather than waiting until July as the super contributions are only deductible when they are paid.
5. Don’t miss tax deadlines
It can be easy to miss the due dates for lodging your tax return, pay as you go (PAYG) and business activity statements (BAS). Marking these dates in your calendar can save you stress around tax time. There may also be penalties if you lodge after the due date.
Todays blog was bought to you with insights from The Commonwealth Bank, H&R Block and The ATO and should be used as a guideline as all circumstances are varied and individual results may vary.
For the most up-to-date taxation information, you can find more information on the ATO website or speak to an accountant or tax adviser.
