How to Minimise your Business Tax Debt
At the end of 2019, the Australian Tax Office registered almost $15billion worth of debt owed to them by small business owners. That’s a staggering number; particularly when you consider that most small business owners are mum and dad operations juggling their cash flow. And, many of these business owners would say that that money is better off in their pockets than with the Government. So, if you are one of these small business owners, then you are probably wondering how you can minimise your business tax debt.
What is a claimable deduction?
The Australian Tax Office (ATO) has a relatively diverse list of what is and is not a claimable business expense. The questions which business owners need to ask themselves are:
- Was the expense for business use – as opposed to private use?
- If the expense has been split for both business and private use (i.e. home internet) then can you easily calculate the portion used by your business?
- Do you have accurate records to verify the expense?
If you answered yes to these questions, then you can lodge them as a business tax deduction.
What sort of records need to be kept?
If you are claiming business deductions, you must keep a substantial record. The records can be kept in either paper form or electronically (i.e. an emailed receipt), and they must be in English or able to be easily converted to English.
Examples of the records you should be keeping include:
- Asset acquisition such as tools needed for your business or vehicles or stationery and incidentals; and
- Tax-deductible gifts, donations or contributions
The Australian Tax Office law is that these records are to be kept for five (5) years after claiming, just in case you are ever called upon to produce these records to the ATO.
What about GST?
GST is a little trickier because it cannot be claimed as a tax deduction if you have claimed it as a credit on your Business Activity Statement (BAS).
Also, if your business is not registered for GST, the full amount of the expense can be claimed as a tax deduction.
Offsets and rebates for your business
Small businesses are also entitled to tax offsets and rebates, which can reduce the amount of tax a small business pays by $1,000 each year.
The eligibility for the concession changes regularly and is calculated using your tax return. For more information, or to work out your offset, visit the ATO website.
What isn’t a claimable business tax deduction?
Again, the ATO has kindly provided a list of non-claimable deductions, including:
- Entertainment expenses
- Traffic fines including parking fines
- Domestic expenses such as childcare fees or general clothes (excluding work uniforms)
- Expenses incurred for a hobby business
What about travel expenses
One of the most frequently asked questions for business owners is about the use of motor vehicles. As a business owner, you can claim a tax deduction for a vehicle which was used in the running of your business.
More information regarding the use of your vehicle for tax expenses can be found in this handy printable flyer.
If you do get into trouble with repaying your business tax debt
We understand that sometimes things happen and cashflow is tight. Despite public opinion, the tax office can be reasonably easy to deal with, and they are willing to enter into payment arrangements. Your first step should always be to contact the ATO because they cannot help you if they don’t know what is happening.
If your debt is $100,000 or less, you can propose a payment plan online through the business portal, or via your registered tax or BAS agent. Alternatively, you can contact the ATO on 13 72 26, 24 hours a day, 7 days a week.
Businesses with a debt greater than $100,000 can contact the ATO on 13 11 42, Monday to Friday between 8am to 6pm.
When it all gets too much
Tax time is confusing and often frustrating for many business owners. If you find yourself flustered by your tax time obligations, the team at Synergy Accountants and Estate Planners are here to help.
*Disclaimer* The abovementioned advice is true and correct as at the date of publication. The information contained in this blog is to be considered a guide only and is not intended to be used in lieu of advice received from your registered accountant or tax agent.