Tax Return Tips for Australian Businesses

Tax time can be stressful for Australian business owners, with much to manage.

There’s a lot to think about, from tracking expenses to ensuring compliance with the Australian Taxation Office (ATO) requirements.

This guide will help you navigate the end of the financial year (EOFY) and maximise your tax return.

Let’s get straight to the point

Maximise your tax return by preparing early, gathering necessary documents, declaring all income, and claiming eligible deductions like work-related expenses and superannuation contributions.

Write off obsolete assets, carefully value trading stock, and document private company loans. Consider hiring a registered tax agent if your situation is complex to ensure you get the most out of your EOFY tax return.

Prepare for Tax Time Early

1. Gather Necessary Documents

Before diving into your tax return, ensure you have all the necessary documents. Here’s what you’ll need:

• Payment Summaries: These detail your income from employment, pensions, or government benefits like Centrelink.
• Bank Statements: Include information about any interest earned and fees paid.
• Investment Statements: These cover dividends or distributions from shares, unit trusts, or managed funds. Reinvested dividends also count as income.
• Rental Property Records: If you own a rental property, gather income and expense details. If you use a property manager, they usually provide an annual tax statement.
• Foreign Income Details: Include information on any income earned from overseas sources.
• Private Health Insurance Statement: This is needed for the relevant section of your tax return.

2. Pre-fill Your Tax Return

The ATO’s pre-filling service can save you time by automatically including information from employers, banks, and government agencies.

This service is usually ready by late July or early August. After pre-filling, review the details to ensure accuracy and add any deductions you plan to claim.

Know What Income Must Be Declared

1. Common Sources of Income

When completing your tax return, it’s essential to declare all sources of income. These typically include:

• Employment Income: Wages, salaries, and bonuses.
• Government Payments: Centrelink benefits, superannuation pensions, and annuities.
• Investment Income: Interest, dividends, rental income, and capital gains.
• Business Income: Earnings from your business, partnership, or trust.
• Foreign Income: Income earned from overseas investments or pensions.

2. Unusual Income Sources

Don’t forget less obvious income sources, like:

• Crowdfunding Earnings: Funds raised for profit-making ventures.
• Sharing Economy Income: Earnings from Uber, Airbnb, or Airtasker platforms.
• Other Income: Insurance payouts, compensation payments, and certain awards or prizes.

Maximise Your Deductions

1. What Can You Claim?

You can claim deductions for certain expenses directly related to earning your income to lower your taxable income. Here’s a breakdown of what you might be able to claim:

• Vehicle and Travel Expenses: You can claim these if you use your vehicle for work purposes but not for commuting between home and work.
• Clothing and Laundry: This applies to uniforms that are distinctive to your job, like branded clothing or safety gear.
• Gifts and Donations: Contributions to charities registered as “deductible gift recipients” by the ATO can be claimed.
• Home Office Expenses: If you work from home, you can claim some of your internet, phone, and electricity bills. Keep in mind that only the work-related portion of these expenses is deductible.
• Investment Income Deductions: You can claim fees related to managing your investments, including account fees, subscriptions, and depreciation of relevant equipment.
• Self-Education Expenses: If your studies are related to your current job, you can claim course fees, textbooks, and related travel expenses.
• Tools and Equipment: If you buy tools or equipment for work, you can claim either the full cost (under $300) or depreciation (over $300).

2. Deductions You Cannot Claim

The ATO is vigilant about incorrect claims, so it’s important to know what you cannot claim:

• Private Travel: Commuting between home and work is not deductible.
• Everyday Clothing: Even if your employer requires it, everyday clothing like suits or business attire isn’t deductible.
• Self-Education Expenses: These expenses are not deductible if your studies are unrelated to your current job.

Top Tips for EOFY Tax Returns

1. Superannuation Contributions

Pay your superannuation contributions before 30 June to ensure you can claim them as a deduction. Employers must meet the 11.5% Superannuation Guarantee Charge (SGC) requirement each quarter to avoid penalties.

2. Review and Write Off Obsolete Assets

Go through your asset register and scrap any obsolete equipment before 30 June. This allows you to claim a write-off deduction for these outdated assets.

3. Claim Capital Gains Tax (CGT) Concessions

Small businesses may be eligible for CGT concessions when selling active assets. You can use these concessions to reduce or eliminate capital gains tax if you qualify.

4. Value Your Trading Stock

You may need to value your trading stock at the end of the financial year. You can choose the best outcome method—market value, cost, or replacement value.

5. Write Off Bad Debts

If you have outstanding bad debts for over 12 months, write them off before the end of the financial year. This will allow you to claim a deduction and reclaim any GST credits on the bad debt.

6. Document Private Company Loans

Ensure any private company loans extending beyond the financial year’s end are properly documented. Without proper documentation, the ATO may treat these loans as unfranked dividends, resulting in higher taxes.

7. Review PAYG Instalments

If your income is lower than expected, consider adjusting your PAYG instalments for the June quarter to avoid overpaying.

8. Claim Deductions for Director’s Fees and Bonuses

If you plan to pay director’s fees or bonuses, you can claim a deduction for these payments. Ensure the recipients are notified before the end of the financial year, even if the payments are made later.

Get Ready for the Next Financial Year

1. Organise Your Records

Start organising your receipts and records for the next tax year as soon as you file your return. This makes the process easier and ensures you don’t miss out on any deductions.

2. Invest in Work-Related Purchases

If you plan to make any significant work-related purchases, do so before the end of the financial year. This will maximise your deductions and boost your tax return.

3. Find a Registered Tax Agent

If your tax situation is complex, consider hiring a registered tax agent. They can help you navigate the process and ensure you claim all the deductions you’re entitled to.

Ensure your agent is recognised by one of the major industry bodies, such as Chartered Accountants Australia and New Zealand, CPA Australia, or the Institute of Public Accountants (IPA).

Conclusion

Being well-prepared and informed can make a significant difference in your tax return. Gathering the right documents, knowing what income to declare, and claiming all eligible deductions can maximise your return and avoid potential pitfalls.

Whether you manage your own tax affairs or seek the help of a registered tax agent, these strategies will help you confidently navigate the EOFY, ensuring your business remains compliant and financially healthy.

Frequently Asked Questions

What’s The Difference Between Payg And Income Tax?

PAYG (Pay As You Go) is a system where businesses pay instalments towards their income tax liability during the year. Income tax is calculated and paid based on your net taxable income when lodging your tax return.

Can I Carry Forward Losses From A Previous Year?

Yes, businesses can carry forward tax losses to offset future taxable income, reducing their tax payable. However, ensure compliance with the Continuity of Ownership Test or Same Business Test.

How Do I Avoid Common Mistakes In My Tax Return?

Avoid these common errors:

• Incorrect or missing information.
• Overlooking deductions or claiming ineligible ones.
• Forgetting to include all sources of income.
• Filing late, which may attract penalties.
• Not keeping adequate records.

Is Using A Tax Agent Worth It?

A registered tax agent can help you:

• Navigate complex tax laws.
• Maximise your deductions.
• Ensure compliance and accuracy.
• Access extended lodgement deadlines.

What Small Business Tax Incentives Are Available?

Common incentives include:

• The Instant Asset Write-Off for equipment purchases.
• The Small Business Income Tax Offset for sole traders and partnerships.
• Depreciation concessions under the simplified depreciation rules.