Tax tips for small business owners
Tax time is right around the corner and for a lot of small business owners trying to focus on maintaining business operations during the COVID-19 pandemic, this might seem like an added headache.
Small business is an integral part of our economy and deserves additional support especially during this period. To help out, we’ve compiled our top tax tips for small business owners to help you determine how to do a small business tax return for financial year 19/20.
What classifies a Small Business?
A business is classified small if its annual turnover excluding GST is below the $10 million threshold.
Noting the importance of maintaining competitiveness between small businesses, the Government supplies small business tax concessions to help small business owners during tax time.
There are several options that smaller enterprises can take up if they satisfy that $10 million turnover test.
What tax concessions do you have as a small business?
As a small business, you may be eligible for these small business tax concessions granted by the Government.
1. Instant Asset Write-Off
The instant asset-write off allows your small business to write off the cost of an individual asset, provided that the cost falls below the threshold.
Up until the 12th March 2020, assets costing up to $30,000 were able to be written off under the instant asset write-off scheme.
However, under certain circumstances, The Federal Government have now substantially increased the instant asset write-off from $30,000 to $150,000.
Instant asset write-off remains one of the best tax concessions available for small businesses and is a primary way for your business to acquire capital assets to build your business and at the same time reduce your taxable profits.
Some of the items you could consider include:
- Cash registers
- POS devices
- Company vehicles
- Fittings and fixtures for your premises
- Plant and machinery for your trade
- Computers, laptops and tablets
To find out more about the scheme, check out the changes to the instant asset write-off.
2. Goods and Services Tax (GST)
Tax agent vs self-lodgement
Goods and Services Tax (GST) can seem difficult at times. However, there are rules in place to aid small businesses to take care of their GST obligations.
Here are your GST obligations as a small business:
- You are required to account for GST only once payment has been received.
- You can pay your GST in instalments provided to you by the ATO.
- Your tax instalments are available as pay-as-you-go instalments, where you can pay quarterly rather than all at once.
These requirements are eased for small business in order to help businesses survive and continue competing.
3. Prepaid Expenses
As a small business, you may be entitled to an immediate tax deduction for your prepaid expenses.
Expenses such as insurance, rent, or membership of trade may be deducted because they run into the new financial year.
If you have questions about this tax concession, give us a call on 1800 618 800 and we can talk it through with you.
4. Capital Gains Tax (CGT)
The Government has provided some relief for small businesses and paying Capital Gains Tax however, this is dependent on a couple of factors.
Depending on your small business structure, you may be eligible for:
- The CGT rollover,
- The 50% active asset reduction,
- The retirement exemption, or
- The 15-year exemption.
These exemptions and reductions are all dependent on certain factors, and we strongly encourage you to seek the help of an expert before making claims yourself.
What impact does COVID have on small business taxes?
Due to the major impacts COVID-19 has had on businesses, the Federal Government have introduced stimulus packages in order to bring some relief to companies effected by COVID-19.
Depending on the significance of the effect the pandemic has had on your business, you may be entitled to reliefs in this financial year’s taxes.
Some of the stimulus measures you should be aware of for the upcoming tax return lodging can be found here.
What deductions are you able to claim?
The golden rule to follow when considering what you can claim as a tax deduction is, that the expense you paid was incurred in order to run your business.
Here are some tax deductions you may be able to claim.
- Bad debts
- Borrowed funds
- Travel for the purpose of business
- Fringe benefits
- Work from home expenses
- Depreciating assets
- Repairs, replacements and maintenance costs
- Superannuation contributions
- Wages and salaries
- Tax management costs
- Mobile phone usage
Due to the COVID-19 pandemic, you may need to claim work from home expenses. You can find more information about work from home claims here.
Additional support offered by ATO
The Australian Tax Office has been sincere in their understandings toward small businesses affected by COVID-19.
In response to the pandemic, the ATO announced a series of assistance measures for businesses.
- Deferrals of BAS and PAYG instalments, income tax, FBT assessment by up to four months.
- Allowing businesses early access to any GST refunds by opting for monthly GST reporting rather than quarterly reporting.
- Allowing businesses to vary PAYG instalment amounts and claim a refund for instalments made for the September and December 2019 quarters.
- Remittance for any interest and penalties that have been applied to tax liabilities incurred on or after January 23, 2020.
- Allowing businesses to opt for low-interest payment plans for existing and ongoing tax liabilities.
If you require more information and to determine eligibility, head to the ATO COVID-19 Additional Support page.
For additional tax tips for small business owners
We’re here to help you navigate through this year’s tax lodgments. For information on how to prepare taxes for small business, reach out for a friendly chat today.