Best Tax Advice for Small Businesses
Small businesses are the backbone of the Australian economy. According to the December 2020 Small Business Count from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), more than 2.3 million small businesses in Australia employ around 5 million employees, just under half of all private-sector employees.
Small businesses are a vital part of our economy, and they must get the best tax advice possible to stay competitive and thrive. As accountants, Grow Advisory Group is best positioned to offer such advice.
If you’re a small business owner looking for the best tax advice, you’re in luck! In this post, we will discuss the top 10 tax tips you can use to help reduce your tax bill and increase your deductions. We’ll cover everything from record-keeping to claiming deductions. So read on to learn more!
1. Determine if you need to file taxes as a small business
The first tax advice we can offer small businesses is determining if you must file taxes because not all small businesses do. In Australia, you only have to file taxes if your gross income exceeds the tax-free threshold, which currently stands at $18,200.
If your income is under $18,200, you do not need to file a tax return. However, you must complete the TNF declaration to claim the tax-free threshold. If you don’t claim the tax-free level, you’ll have to pay tax on all of your earnings, regardless of how much money you make—even if it’s under $18,200.
It’s also important to note that the tax-free threshold may change depending on whether you were a resident for part of the year or a newcomer to Australia.
2. Understand what tax forms and documents you will need
As a small business owner, knowing the tax forms and documents you will need to file your taxes is important. The ATO (Australian Taxation Office) provides a comprehensive list of tax forms and documents on their website.
In general, you will need the following tax forms and documents:
- Business Activity Statement (BAS)
- Income Tax Return (ITR)
- PAYG Instalment Notice
- Employee/Payee tax declaration if wages are paid
- Fringe Benefits Tax return (FBT)
- Goods and Services Tax/Harmonised Sales Tax (GST/HST) return
- Capital Gains Tax return (CGT)
3. Don’t overlook deductions for your business
Tax advice every small business owner wants to know is what deductions they can claim, and this is a big one because the more they can deduct, the less tax they’ll pay!
Deductions are tax-reducing methods that individuals use to reduce their tax liability by reducing the amount of income they are taxed on. Deductions for tax purposes are generally expenses incurred in earning assessable income or carrying out day-to-day activities that would otherwise be tax deductible if you were not an employee (e.g., home office expenses, tax depreciation).
It is important to note that deductions can change from year to year. So, just because you were able to claim something last year doesn’t mean you will still be able to claim it this year. On the other hand, you may be able to claim deductions that you could not claim last year.
4. Understand small business capital gains tax concessions
It’s also important to understand what capital gains tax concessions you have available because this tax advice can save you a significant amount of tax!
For tax purposes, the term “capital gains tax” refers to tax on income that is not taxable. In other words, “taxable capital gains” are on investments or assets typically sold at a profit and will be liable for tax in your hands at your marginal tax rate.
5. Keep records of all business-related expenses
An important piece of tax advice small business owners should take is keeping records of all expenses related to their business. These include home office expenses, tax depreciation, travel, entertainment, and interest expenses.
You shouldn’t claim any deduction if you don’t have proof of the expense because it can come back to bite you if you are ever audited. Thus, keeping records of all expenses, saving receipts, etc., will ensure you’re covered if such an instance occurs.
6. Know what financial records to keep
Along with keeping records of all expenses, you need to keep records literally. Once you have filed your taxes, you are legally required to retain certain documents to justify your transactions for tax reasons if you are ever audited.
You must keep records for 5 years.
You need to keep receipts for supplies, acquisitions and other expenses, as well as wage records. You can find a full list of these records here.
7. File your tax return early to avoid penalties or interest charges
Following the ATO’s deadlines for filing your taxes is essential. You may have to pay a Fail to lodge (FTL) penalty if you do not meet tax deadlines.
For a small business, the FTL penalty is calculated at the rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is late, up to a maximum of five penalty units.
The following Penalty Unit table outlines the value of a penalty unit based on the infringement date.
| When infringement occurred | Penalty unit amount ($) |
|---|---|
| On or after 1 July 2023 | 313 |
| 1 January 2023 to 30 June 2023 | 275 |
| 1 July 2020 to 31 December 2022 | 222 |
| 1 July 2017 to 30 June 2020 | 210 |
| 31 July 2015 to 30 June 2017 | 180 |
| 28 December 2012 to 30 July 2015 | 170 |
| Up to 27 December 2012 | 110 |
You can learn more about FTL penalties here.
8. Find out how much money you’ll owe in taxes ahead of time
One of the main reasons small businesses file their tax returns late is because they know they don’t have the funds to pay their expected tax bill. Many small businesses file their tax returns, hoping for a favourable outcome, but this doesn’t have to be the case.
You can avoid the nasty shock of receiving your tax bill by determining how much money you’ll owe before you lodge your tax return. By using an income tax calculator or hiring a small business tax accountant, you can estimate how much tax you can expect to pay. In doing this, you can put money aside throughout the year to pay your taxes by the due date, avoiding penalties.
The ATO offers a free income tax estimate, which you can access here.
9. Be aware of any changes made by the government
Tax requirements and legislations change yearly, so you must stay up-to-date with key changes and new measures introduced yearly. Failing to keep current may mean missing out on new concessions or significant legislative changes.
10. Consider hiring a professional tax accountant who knows how to work with small businesses
This may seem like a shameless plug for Grow Advisory Group, but hiring one of our tax accountants can also be the best tax advice you’ll ever be given.
Our specialist tax accountants can advise on which tax deductions are available, how to calculate them, and whether they apply to your situation. They are up-to-date with the latest deductions and tax legislation to ensure the best outcome.
A tax professional can also help you file your tax return on time to avoid an FTL penalty. Along with providing professional tax advice, they may also be able to advise on tax planning, e.g., taking advantage of tax exemptions and concessions that apply to you to keep more of your hard-earned money in YOUR POCKET! Of course, they can complete and lodge tax returns as well.
Conclusion
Now you have tax advice that’s always up-to-date, not to mention tax tips that can help save your business. Keep track of tax changes and deadlines, avoid FTL penalties, hire a professional tax advisor if you need tax advice, and consult the government website for tax information.
By staying on top of tax deductions, tax tips, and tax legislation changes, you’ll save your business time and money when tax season comes around.
More tax information is available in our tax articles section or on the ATO’s website.
If you’d like to enlist a professional accountant specialising in small business tax, look no further than Grow Advisory Group. With offices in Tweed Heads South and Varsity Lakes, our dependable team can offer fantastic tax advice to help reduce taxes and increase your tax return.
Call us today on 07 5599 5700 to arrange a free, no-obligation meeting.