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, which is just under half of all private-sector employees.
Small businesses are a vital part of our economy, and it’s important that they get the best tax advice possible to stay competitive and thrive. As accountants, Grow Advisory Group are in the best position 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 be discussing the top 10 tax tips that 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 bit of tax advice we can offer to small businesses is to determine if you have to 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 will need to 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; the tax-free threshold may change depending on whether you were a resident for part of the year or you are a newcomer to Australia.
2. Understand what tax forms and documents you will need
As a small business owner, it is important to be aware of the tax forms and documents you will need in order to file your taxes. 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 can you claim, and this is a big one because the more you can deduct, the less tax you’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).
Important to note, 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 this year. On the other hand, you may be able to claim deductions that you were not able to claim last year.
4. Understand small business capital gains tax concessions
It’s also important for tax purposes that you understand what capital gains tax concessions you have available to you 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 which have been sold typically 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 to keep records of all expenses that are related to your business. These can include things like home office expenses, tax depreciation, travel expenses, entertainment expenses 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 were to occur.
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 required by law to keep certain documents in order to justify your transactions for tax reasons if you are ever audited.
You must keep records for 5-years.
The records you need to keep include receipts for supplies, acquisition and other expenses, and wages 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. If you do not meet tax deadlines, then you may have to pay a Fail to lodge (FTL) penalty.
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 2020||222|
|1 July 2017 – 30 June 2020||210|
|31 July 2015 – 30 June 2017||180|
|28 December 2012 – 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 return late is because they know they don’t have the funds to pay their expected tax bill. Of those that do file their tax return, many cross their fingers and hope for a good outcome, but it needn’t be this way.
You can avoid the nasty shock of receiving your tax bill by finding out how much money you’ll own before you lodge your tax return. By using an income tax calculator or by hiring a small business accountant, you can get a close estimate of how much tax you can expect to pay. In doing this, you can then put money aside throughout the year to pay your taxes by the due date, avoiding any penalties.
The ATO offers a free Income Tax Estimator, which you can access here.
9. Be aware of any changes made by the government
Tax requirements and legislations change from year to year, so it’s essential you stay up-to-date with key changes and new measures introduced each year. Failing to stay up to date may mean you miss out on new concessions or significant legislation changes.
COVID-19 has impacted small businesses greatly, as such, 2021 tax returns saw many changes, which are expected to be adapted for 2022 tax returns.
You can view the key change of 2021 tax returns here.
10. Consider hiring a professional accountant who knows how to work with small businesses
This may seem like a shameful plug for Grow Advisory Group, but hiring a professional accountant can also be the best tax advice you’ll even be given.
A specialist small business accountant, such as those you will find at Grow Advisory Group, can advise on which tax deductions are available to you, 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 very 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 – in order to keep more of your hard-earned money in YOUR OWN POCKET! Of course, they can complete and lodge tax returns as well.
Now you have tax advice that’s always up-to-date – not to mention tax tips that can help save your business. Make sure you keep track of tax changes and deadlines, stay away from 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.
You can find more tax information in our tax articles section or on the ATO website.
If you’d like to enlist a professional accountant who specialises in small business tax, then look no further than Grow Advisory Group. With offices in Tweed Heads South, Varsity Lakes, and Nerang, we have a dependable team who can offer fantastic tax advice to help reduce your taxes and increase your tax return.
Call us today on 07 5599 5700 to arrange a free, no-obligation meeting.
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Disclaimer: The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant and/or financial adviser.