Tax Return Tips for Australian Businesses
Business owners often find themselves drowning in paperwork, and tax time adds to the burden. There’s always so much to consider including what you’re eligible to claim and ways to maximise your business’ end of year profits. In light of Project Wickenby’s recent crackdown on tax evasion and fraud, leading Chartered Accountancy firm, Nexia Court & Co is warning businesses with offshore accounts or assets to be extremely vigilant. Companies unsure if any of its business activities may be considered illegitimate should seek advice from the Australian Tax Office (ATO) immediately.
When it comes to the end of the financial year, it pays to be prepared so that you can make sure you’re getting the biggest possible return for your tax claim.
There are a few tips and tricks that you can employ to maximise your refund from the Australian Taxation Office. These include both ongoing activities that you’ll need to complete throughout the year, as well as specific methods for dealing with your actual tax claim.
So, whether you’re planning on spending your return on a holiday, bills, or popping it away in your savings account – let’s take a look at some simple ways you can boost your tax return at the end of the financial year (EOFY).
Before we sit down with you to go over your tax return, certain information will be needed. Of course these days pre-filling takes care of a lot of the “paperwork”, and if you wait until late-July or mid-August the ATO’s systems will most likely be able to provide most of the information from employers, banks, government agencies and other third parties.
We will then be able to double-check the information is correct and enter any deductions you want to claim. However, to be thorough, before coming in for your tax appointment here are the sorts of information needed to enable us to complete your tax return.
- Payment summaries: These outline the income you have received from your employer, super fund or government payments such as from Centrelink or the Department of Veterans Affairs.
- Bank statements: Details any interest you have earned during the period and fees you have paid.
- Shares, unit trusts or managed fund statements: Information on dividends or distributions you’ve received (dividends that you’ve elected to reinvest must be declared as income).
- Buy and sell investment statements: Needed to calculate capital gains and losses. If you bought or sold any shares, you can access the details on your online broking account, or you can get them from your investment adviser or stockbroker.
- Records from your rental property: If you use a property manager, you will probably get an annual tax statement that details income and expenses. Otherwise, you will need to gather details of income received, and expenses paid, including any capital gains or capital losses from the sale of the property.
- Foreign income: Details of foreign pensions or other foreign income.
- Private health insurance policy statement: Information needed to complete the private health insurance section of your tax return.
Income that must be declared
The taxability of some forms of income may seem obvious, but in keeping with our objective of being thorough, here’s a list of common types of income that must be declared on your tax return.
- Employment income
- Super pensions, annuities and government payments
- Investment income (including interest, dividends, rent and capital gains)
- Business, partnership and trust income
- Foreign income
- Income from crowdfunding (for example donations received for a venture in which you intend to make a profit)
- Income from the sharing economy (for example Airtasker, Uber or Airbnb)
- Other income, including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards. Check with us if you are unsure.
When completing your tax return, you’re entitled to claim deductions for some expenses, most of which should be directly related to earning your income (called “work-related expenses”). Naturally, a deduction reduces your taxable income and means you pay less tax.
To claim a deduction for work-related expenses:
- you must have spent the money yourself and not been reimbursed
- it must be directly related to earning your assessable income
- you should have a record to substantiate your claim.
When your expenses meet these criteria, here’s a list of the things you may be able to claim.
- Vehicle and travel expenses: This does not normally include the cost of travel between work and home, but if you use your car for work or work in different locations then you may be able to claim a deduction.
- Clothing, laundry and dry-cleaning expenses: To legitimately claim the cost of a uniform, it needs to be unique and distinctive, for example, it contains your employer’s logo, or is specific to your occupation, like chef’s pants or coloured safety vests.
- Gifts and donations: Only claim for contributions to organisations that are endorsed by the ATO as “deductible gift recipients”.
- Home office expenses: Costs could include your computer, phone or other electronic device and running costs such as an internet service. There may be scope for depreciation, and you can only claim the proportion of expenses that relate to work, not private use.
- Interest, dividend and other investment income deductions: Examples include interest, account fees, investing magazines and subscriptions, internet access, depreciation on your computer.
- Self-education expenses: Providing the study relates to your current job; you may be able to claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
Tools, equipment and other equipment: If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. The type of deduction you claim depends on the cost of the asset. For items that don’t form part of a set and cost $300 or less, or form part of a set that together cost $300 or less, you can claim an immediate deduction for their cost. For items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.
Other deductions: Other items you can claim include union fees, the cost of managing your tax affairs, income protection insurance (but not if it’s through your super fund), overtime meals, super personal contributions (that is, after-tax) and other expenses incurred in the course of earning an income.
Of course, check with this office for more ideas. Sometimes one’s circumstances will define what can and generally cannot be claimed as a deduction, so even if some of the above seem to fit your situation, it may pay to check with us first.
Off the deduction menu
The ATO is focused on helping taxpayers get their deductions right, but it’s also on the lookout for red flags that identify people who are doing the wrong thing. Here’s a list of deductions you usually can’t claim on your tax return.
- Travel between home and work, which is generally considered private travel.
- Car expenses, unless you are transporting bulky tools or equipment that you need to do your job, and that your employer requires you to transport (and there is no secure area to store the equipment at work).
- Car expenses that have been salary sacrificed.
- Meal expenses, unless you were required to work away from home overnight.
- Private travel, including any personal travel portion of work-related travel.
- Everyday clothes you bought to wear to work (for example, a suit or black pants), even if your employer requires you to wear them.
- Self-education expenses where there is no direct connection to your current employment.
- Phone or internet expenses that relate to private use.
Top tips for the business end of financial year tax returns
Visit the Australian Tax Office (ATO) website for the latest tips and advice most relevant to your business.
There is a wealth of information on the ATO website. Research the latest government levies as well as up-to-date advice on what you may be eligible to claim as a deduction.
Pay superannuation contributions before the 30th to ensure a deduction.
Employers must check they have made sufficient superannuation contributions (9%) for all employees every quarter throughout the financial year to avoid incurring a penalty under the Superannuation Guarantee Charge (SGC).
Scrap obsolete plant and machinery
The best way to get a write-off deduction for obsolete objects is to review your asset register and take the necessary action before 30 June. The asset register is a list you should be keeping of all company equipment, including furnishings and all items bought, sold or disposed of during the year.
Get capital gains tax concessions.
This concession allows you to reduce the capital gain arising from a business asset (an active asset) by 50%. To qualify for the 50% active asset reduction, you need to satisfy the basic conditions that apply to all the capital gains tax (CGT) small business concessions. You can apply all the concessions you are entitled to (rules apply) until the capital gain is reduced to nil. If unsure, visit the ATO website for more information.
Value trading stock at the lower cost – market value or the replacement value
If you are required to include a value in your accounts of stock on hand as at 30 June, you can select the most advantageous valuation method, which could allow you to reduce your trading income.
Write off bad debts and claim back the GST credits where the debt has been outstanding for more than 12 months.
To do this, the debt must have been brought to account as assessable income, and you must have physically written off the debt prior to the end of the year. Bad debts cannot be claimed by taxpayers who recognise income on a cash basis.
Ensure private company loans that extend beyond the end of the income year are properly documented
If they are not set up correctly, they may be deemed by the Tax Office as unfranked dividends paid to the shareholder by the company. If this is the case, you could be paying more tax than necessary.
Review PAYG instalment obligations
Consider varying the instalment for the June 2011 quarter where your estimate of income tax payable for the year is less than the instalments calculated by the ATO.
Claim a deduction for Director’ fees and bonuses
If you intend to pay Directors’ fees or bonuses to your team, you may be able to claim the deduction in this financial year. Let the people you’re paying know the fee or bonus will be paid and document proof that you advised them prior to the end of the tax year. The payment does not have to be made this financial year to claim the deduction. If the payment is not made until July, the person will not have to declare the income until the next financial year.
What you need to do to prepare for EOFY
Collect your receipts and organise your records
This is something that you should start (or continue) doing as soon as you’ve lodged your tax return – start collecting your receipts for the next one! You should be tracking all of your expenses relating to your work and income that is eligible for a tax deduction (including kilometres driven for work, uniforms and dry cleaning, home office expenses, sun protection and self-education).
However, gone are the days when the only way to keep track of your receipts and records accurately was to stuff electronic dockets and handwritten notes in a shoebox to sift through when it came to the end of the financial year. Now, there are handy mobile phone apps that allow you to easily and consistently track your work-related expenses.
Some of these include:
- TrackMySpend – Developed by the Australian Securities and Investments Commission (ASIC), this app helps you keep tabs on where your money is being spent, so you can cut back where you need to and increase your savings.
- Concur – allows you to automate and take photos of your travel and work-related expenses, in addition to managing invoices.
- Pocketbook – A powerful personal budgeting and accounting tool that categorises your spending, so you can see where your money is going.
If you want to do your part to minimise your paper usage and help the environment out, you can also start requesting email receipts instead of paper ones. Create a custom folder in your email inbox, and as soon as the receipt lands, drag it in there. This means you’ll be all set and organised when it comes to tax time, as you’ll have everything in the same place.
Get big work-related purchases out of the way before EOFY.
If you need to purchase a fairly expensive item for work and it’s something that you’ll be able to claim for, maximise your return by making sure you buy it before the end of the financial year. This could include a bulk uniform order, a new laptop, new work equipment or items for home offices. You could even enrol into that upskilling course you’ve had your eye on!
Find a great accountant.
If you feel that doing your tax return is achievable for you, then that’s great news! You’ll be saving on tax agent fees (even though it’s important to remember that these are tax-deductible themselves).
However, if you have lots of items to claim (or a few different PAYG summaries to reconcile), then it can save you lots of time to find a good registered tax agent.
Registered Tax Agents are the only tax agents that can charge fees for their services, so you need to do your research in ensuring that you’re hiring a reputable, honest and accredited tax agent. Your agent should be recognised by one of these three industry bodies: Chartered Accountants Australia and New Zealand, CPA Australia or the Institute of Public Accountants (IPA).
Booking an appointment with an accountant early (you should call up at least a couple of months before the end of the financial year to make an appointment in July) will help ensure you get a spot, as tax agents can get pretty busy around tax time (obviously).
What can I claim?
Now, THIS is where we get to crunch time when it comes to maximising your return. Making sure that you claim for every possible tax deduction you may be eligible for will ensure you have the biggest possible deposit from the Australian Taxation Office in your bank account – and the lower the chance you’ll owe the tax office money and have to pay a bill.
Let’s take a look at some things you can claim that you may not have thought of.
- Your tax agent fees
- Magazine subscriptions if related to your industry
- Your electricity bill (if you work from home)
- Your handbag (if it’s used for work purposes)
- Self-education that relates to your current field
- Any donation to a registered charity over $2
- Income protection insurance
- Sun protection like hats, sunscreen and sunglasses
- Overtime meals
- Kilometres travelled for work
- Work uniforms
- Dry cleaning for work uniforms
You don’t need to supply written proof (such as a receipt) for a total of work-related expenses under $300; however, for expenses over this amount, you will need to provide proof.
It’s never too late to start tracking your spending and setting better habits for the next financial year. Download a receipt/spending tracker, and you’ll be amazed at how much difference it could make to your bank account – bot at tax time and now.