Managing tax and keeping on top of tax liabilities, deadlines and allowances is vital for businesses.
The end of the financial year is busy for businesses so keep tax affairs organised by managing the key elements throughout the year.
Follow these top tips to pay the right amount of tax and claim all eligible allowances and deductions.
1) Pay the right amount – Make sure you pay the right company rate. It’s your responsibility to get the figures right and not pay too much or too little.
For 2017-18, companies with a turnover below $25 million and where 80 per cent or less of their assessable income is base rate entity passive income, pay tax at 27.5 per cent. This follows the introduction of the Enterprise Tax Plan. In 2018-19, companies with turnover below $50 million will pay 27.5 per cent.
Companies whose main source of income is “passive” like rent, capital gains and investment interest pay 30 per cent.
2) Claiming deductions – Claim all allowable deductions including rent, utilities, legal and accounting advice.
Get the tax treatment of prepayments and accruals correct so they match to the right period.
Be careful because the Australian Tax Office (ATO) looks for unjustified deductions in areas like travel expenses, meals and internet use.
To claim a deduction, you must have incurred the expense, it must be a business not personal expense and you must be able to justify it as an allowable expense within your assessable income.
3) Instant asset write-off - Take advantage of the $30,000 instant asset write-off.
Business owners can claim up to $30,000 on the value of a new or used asset, but only for the proportion used for business purposes.
4) Minimise fines by making deadlines – To qualify for tax deductions for superannuation payments made for employees in the current tax year you must file your tax return by 30 June.
If you don’t you can’t make a back-dated claim.
Super must be paid to staff 28 days following the end of each quarter otherwise it’s not tax deductible.
The government launched a 12-month amnesty from 24 May 2018 for employers to pay any outstanding super contributions for periods before 1 April 2018.
If they do they won’t be liable for penalties and can claim a tax deduction for payments made during the 12-month period.
5) Private company loans – Income tax laws mean private company loans can be treated as unfranked deemed dividends unless an exemption applies.
The most common exemption is a written loan agreement which requires minimum interest and principal repayments made over a specified loan term, up to 25 years depending if the loan is secured.
The rules around private company loans are in-depth and regularly change so check with your agent.
6) Capital gains – There have been recent CGT changes. When business owners sell their business there will be tests to decide if the CGT asset is active.
Owners must be deemed to have been running an active business before the sale of the business.
The owners’ net assets and the businesses value must be below $6 million. The business turnover must be below $2 million to qualify for CGT concessions.
7) Bad debts – Bad debts are a growing problem for Australian businesses.
So, use tax deductions to write off debt you don’t think will be paid. Debt from the current year or a previous tax year can qualify.
Keep records to show it’s been written off and what actions you took to try and recover the debt.
Various conditions must be met. It must be a live debt that still existed when it was written off and was deemed unrecoverable.
8) Use the income tax offset – Unincorporated businesses are eligible for the small business income tax offset. If your turnover is below $5 million, you can offset 8% of tax payable.
The offset rate is scheduled to increase from 8% to 16% by 2027. It’s available to sole traders, partnerships and trusts and is useful for businesses in early stages of growth.
9) What is the ATO looking for – Every year the ATO focuses on specific types of businesses and deductions to ensure businesses are complying.
Last year, Assistant Commissioner Kath Anderson told businesses the ATO would target work expenses for car use, home offices, laundry and income from cryptocurrency investment.
The ATO said it would study taxpayer’s social media accounts to see if there are inconsistencies in reported income and their actual lifestyles.
10) Keeping accurate records –This helps with all areas of tax compliance and if the ATO ever want to see your books, you’ll be confident there are no discrepancies and that you can answer their questions quickly and clearly.
It’s important to have accurate and up-to-date records. You can do this by using the right accounting systems and good processes.
By following these top tips your business and tax affairs will be organised, you’ll receive all eligible allowances, pay the right amount of tax and be fully tax compliant.
You can then reap the benefit, focus on growing your business and concentrate your skills on the creative and operational sides of your business.
Call Morris Finance on 03 5223 3453 for help and advice on all aspects of business finance.