Tax Tips For Manufacturing Businesses Australia
The manufacturing industry encompasses a wide range of subfields. Commodity products such as some foods and drinks and high value-added products such as components for the automobile and aerospace industries are both included in this category.
In addition to that, it encompasses areas such as machine tools, medical devices, innovative materials, electronics, and medicines.
It isn’t hard to understand why the segment of the economy that is comprised of small businesses is considered to be the most important driver of economic growth and the largest employment in the country.
Research that was carried out not too long ago by the Council of Small Business Organisations of Australia (COSBOA) revealed that small firms were responsible for the creation of 5.1 million jobs, which is approximately half of all employment in the private sector.
According to the Australian Tax Office (ATO), there are around three million small businesses operating in Australia. This number does not include core production concerns; nevertheless, it does account for approximately 96 percent of all firms.
The Australian Taxation Office (ATO) and, in some instances, the revenue offices of state governments are responsible for the administration and collection of taxes in Australia. If a company pays its taxes on time and in the exact amount, as well as takes advantage of any tax breaks to which it is entitled, the company will experience financial savings.
Company (income) Tax, Capital Gains Tax (CGT), and the Goods and Services Tax are the principal levies that are imposed on commercial enterprises (GST). The government of Australia determines each and every one of these levies.
Companies have the option of making their tax payments on a monthly, quarterly, or yearly basis.
There is additional information offered below regarding these important taxes as well as other business taxes.
During tax season, you have the chance to acquire vital business advice from your expert advisor, which is especially important if the effects of COVID-19 have disturbed your operations.
Your CPA Australia-registered tax agent can assist you in exploring various options for your firm, including ways to innovate, pivot, restructure, and even exit the market.
In order to assist your company, we have developed a wide variety of materials, such as a recovery roadmap, a business recovery guide, and a financial information factsheet, which will assist you in preparing for conversations with your adviser.
Bookkeeping and tax filing are two areas that need to be kept current and accurate at all times by small businesses.
Do you need help with your bookkeeping? Bookkept is a trusted accounting and bookkeeping company in Australia. We perform cheap and quick tax returns for individuals. You can give us a call on (03) 8568 3606 or email us on [email protected].
You should seek the opinion of a qualified tax practitioner, particularly in those locations where more sophisticated tax issues are present.
This comprises personal services revenue, trust declarations and distributions, refinanced debt, losses, restructures, capital gains tax, and trust restructures.
Private company loans are also included in this category.
The sun has set, the sales have begun, and the accountants of Australia are stricken with fear at the sound of every ringing phone. The sales have begun. The time has come once more, folks: the time to submit your tax returns.
The few owners of small businesses who have a clear grasp on both their current financial status and their legal responsibilities surrounding taxes are likely to handle the final month of the fiscal year as they would any other month. This is presuming that they have a good handle on both aspects (must be nice).
The dreaded tax filing deadline of July 1 is getting near, and this means that for the vast majority of taxpayers, this means a wild sprint to dig up old receipts and a frenetic search on Google for information about which deductions can be reported.
The beginning of the Australian financial year is on July 1 and ends on June 30.
The end of the fiscal year, often known as tax season, can be a chaotic and stressful time for many small businesses.
This is because they have to scurry to get their records in order and figure out what deductions may be claimed.
The following is some straightforward guidance to assist you in making the most of this time of year for your company, as well as some helpful hints to assist you in getting your business affairs in order before the end of the fiscal year to help alleviate some of the stress that you may be feeling.
Since the beginning of the 1970s, the manufacturing industry in Australia has been experiencing a steady decline for a number of different reasons. It is difficult for us to compete on a global basis due to our high labour and raw material expenses, as well as our remote location and relatively small production runs.
On the other hand, in spite of globalisation, a relatively high local currency, and shrinking size in a variety of industries, there are still firms that are doing rather well.
There are still many chances available with specialised products, and our most successful manufacturers are forward-thinking.
They employ cutting-edge product designs, innovative process improvements, and marketing strategies that make them stand out from the competition.
In this country, there are many examples of successful manufacturing in a variety of industries, including electronics, machine tools, textiles, food, plastics, and trucks.
As a manufacturer, you confront certain particular obstacles.
It’s possible that you’ll need to handle pending builds and assembly, keep tabs on client orders, manage inventories and costs, and determine which orders have already been sent.
The unpredictability of the Australian dollar is a factor that must be taken into account whether you are exporting your finished goods or importing components.
Although it is not an easy task, over the years we have assisted a number of manufacturers in working through the stages of their business life cycle, beginning with the establishment of the business and ending with the sale of the company.
We believe that having an accountant who is familiar with the needs of manufacturers may provide a significant competitive advantage, and as such, we provide a variety of accounting, tax, and business coaching services to assist in the development and expansion of your manufacturing company.
We are able to assist you with job costing, pricing, break-even analysis, and management accounting services.
Furthermore, by utilising industry benchmarks, we are able to compare the performance of your business to that of your peers, which can help you determine what aspects of your manufacturing business are successful and what aspects could use some improvement.
Tax To Be Collected When Having A Manufacturing Business
A company that has its primary place of business in Australia is required to pay the applicable amount of company tax, which is determined by the Australian government.
A non-resident corporation is subject to the same level of taxation as a resident firm on any income that originates in Australia. Both the amount of revenue that is taxable and the tax rate might change depending on certain factors, such as the type of business or the industry.
Check out the ATO’s page on company tax rates for further information on the company tax, including the company tax rates.
Capital Gains Tax
Any gain in value that is realised as a result of the sale of an asset is subject to the Capital Gains Tax (CGT). As a component of the tax on income, it must be paid.
Foreign entities that acquire assets in Australia for the purposes of operating a business there may be subject to the capital gains tax (CGT). When reaching assets that might be subject to CGT in the future, companies are obligated to begin keeping records for those assets. Concessions on the capital gains tax may also be available to small businesses, depending on the circumstances.
See the page on business.gov.au titled “Capital Gains Tax” for further information on the CGT that is owed on the sale of assets in Australia.
Goods and Services Tax
The Goods and Services Tax, sometimes known as the GST, is a national consumption tax that applies to a large majority of the goods and services that are sold or consumed in Australia.
The vast majority of companies are obliged to register for the Goods and Services Tax (GST) with the Australian Taxation Office. Companies that are eligible to claim an equal input tax credit are those who have paid for business supplies with the GST already included in the price. Concessions on the GST may also be available to individually operated firms.
Visit the Goods and Services Tax page on the ATO website for further details on the GST.
A payroll tax is a state tax that is calculated and applied to the wages that are paid to employees. It is determined by the number of salaries paid out each month and must be paid if the total Australian wages are greater than the exemption threshold in the state or territory in question. Both the threshold at which an employer is exempt from paying payroll taxes and the rate at which payroll taxes are collected are subject to regional and national variations.
Visit the Payroll Tax section of business.gov.au for additional details on payroll taxes and the requirements to register for them.
Financial Year Tax Tips For Australian Manufacturing Business
Take Advantage Of The $20,000 Instant Asset Write-off.
The government has continued to play small and medium-sized businesses for fools by prolonging the popular $20,000 quick asset write-off for only one year at a time, despite the fact that there have been persistent calls for the government to make the much-loved write-off a permanent fixture.
In any case, it will continue to be available until the 30th of June this year, and proprietors of small businesses have until then to submit claims for up to $20,000 worth of assets owned by their companies.
In general, if you buy an asset (such a new coffee maker or circular saw, for instance), you can immediately claim a deduction for the portion of the asset that pertains to your business, up to a maximum of $20,000 in this case.
A proposal to (yet again) prolong the $20,000 instant asset write-off until June 30, 2019, was included in this year’s version of the federal budget; however, the bill still needs to be approved by the Senate. It is scheduled to be debated on Thursday, and it is anticipated that it will be approved without any changes.
During an interview with SmartCompany, tax specialist and director of Solo & Smart According to Patrick Harrison, the $20,000 rapid asset write-off is of utmost significance for self-employed professionals who rely heavily on a variety of assets such as cars, tools, and other property.
““Cash flow is very crucial for business owners in this field,” says Harrison, and any aid that stimulates business growth with better cash flow is advantageous. “Any assistance that encourages business growth with better cash flow is beneficial.”
“A word of warning for small business owners and the self-employed in particular is to not over-extend your firm in quest of tax benefits,” which can be translated as “do not over-extend your business if it won’t leave enough operational cash in the bank.”
Instant Asset Write-off
The instant asset write-off is one of the most beneficial tax breaks for small businesses. It is an excellent way for your company to acquire the much-needed capital assets to build your business while at the same time reducing the amount of taxable profits that your company is responsible for paying.
To make matters even better, the tax credit was just just expanded to include more money. Intangible assets with a cost of up to $150,000 can now be promptly written off, whereas the prior limit was $30,000 up until March 11, 2020. The maximum amount of $150,000 is in effect until the 31st of December in 2020.
A greater number of companies will be eligible to make a claim as a result of the increase in the turnover requirement, which will go from $50 million to $500 million as of March 12, 2020.
The following are examples of items you could claim:
- Registers and other point-of-sale (POS) devices
- Cars, vans and utes
- Provision of furnishings and equipment for your location
- Equipment and tools necessary for your line of work
- Desktops, portables, and tablet devices
- Security systems
- Software for accounting purposes
When computing any claims, you need to be careful to make sure you adhere to all of the guidelines established by the ATO. In addition, you should take the following into consideration:
- It is not enough to just hold an Australian Business Number (ABN); only operational firms are eligible.
- It is necessary to have a good understanding of the tax advantage. It is not a handout in the form of cash, but rather a deduction from the amount of your taxable profit. If you spend $30,000 on a capital purchase, you will receive a 27.5 per cent (26 per cent after July 1, 2020) per cent deduction, which is equivalent to a $8,250 reduction in your tax; however, you will still be out of pocket by more than $20,000 on the purchase. This change will take effect on July 1, 2020. If it’s something you were planning to buy anyhow, then we wish you the best of luck and hope you enjoy the benefit. However, if the only reason you achieved anything or want to achieve something is to reduce your tax liability, you may want to reconsider your strategy. Your gain from the year you made the purchase will be gradually eaten away by the government in the form of decreased deductions in subsequent years.
- The amount that you are eligible to claim is not inclusive of GST. This is crucial information for your company if it is registered for the Goods and Services Tax (GST) and is eligible to claim an input tax credit on the transaction. The amount that you are allowed to claim is the price excluding GST.
- It is necessary that the asset have been set up and be in a usable state. This is of the utmost importance if you made the purchase of the assistance just before the conclusion of the fiscal year. If you buy it before the 30th of June but won’t have access to it until July, you won’t be able to deduct the purchase price from your profits until the year after you make the purchase.
- You are eligible to make a deduction for assets that are used.
- To be eligible for the entire deduction, the assistance must be put to use in the business; however, if it has also been put to personal use, the conclusion must be adjusted so as to take this into account.
Claim Tax Deductions
It is typical advice given to owners of SMEs that they should check to see that they are claiming all of the relevant tax deductions possible. This may include expenses like as rent, utilities, or repairs, as well as professional services such as legal or accounting consultation.
It is possible that it might be beneficial for your company to push forwards expenses to the current fiscal year, such as pre-paying rent or the expenses associated with repairs.
Having said that, you do need to be able to explain the expense, and the expense itself needs to have been paid before you can claim the deduction for it.
Taxpayers have been cautioned by Assistant Commissioner Kath Anderson of the ATO against attempting to claim standard deductions just because they believe they are qualified for them. “People have the misconception that they are entitled to something, even though they have not put any money into it.
You need to have really used the money, “I was informed by Anderson, Fairfax said. “It needs to be tied to earning your income, and you have to be able to show us how you computed the claim.” “It has to be related to earning your money.”
When it comes to filing taxes, it is usual practice to advise owners of small and medium-sized businesses to ensure that they are claiming all of the appropriate deductions they are eligible for. This covers expenses such as rent, utilities, or repairs for your firm, as well as professional guidance such as legal and accountancy counsel.
It is also common for tax professionals to propose that businesses push forwards as many expenses as they can to be completed before July 1; examples of this include pre-paying rent or expenses related to repairs. However, the Australian Taxation Office as well as tax specialists have recommended businesses to ask themselves, “Can you justify this expense?” before making any financial decisions.
This year, the ATO plans to crack down on “standard” deductions, and Assistant Commissioner Kath Anderson has issued a warning to taxpayers not to try to claim standardised deductions just because they believe they are entitled to them. This is one of the items on the ATO’s “hitlist” for this year.
“People have the misconception that they are entitled to something, even though they have not put any money into it. You need to have really used the money, “I was informed by Anderson, Fairfax said.
“It needs to be tied to earning your income, and you have to be able to show us how you computed the claim.” “It has to be related to earning your money.”
Small firms that have a combined annual turnover of less than $10 million are still eligible to receive an instant tax credit for almost all individual assets that cost less than $20,000 and were purchased by the deadline of June 30, 2018. The company is required to use these assets for something that will generate income, and they have to be installed and ready to use by the 30th of June in 2018.
The $20,000 threshold is determined on a GST-exclusive basis for firms that are registered for the Goods and Services Tax (GST), whereas the threshold is computed on a GST-inclusive basis for enterprises that are not registered for the GST.
A depreciating asset that is not immediately deductible because of its high cost (an asset that costs $20,000 or more) will be automatically depreciated at a flat rate of 15 per cent in the financial year of purchase to the extent that the asset is used for income-producing purposes and is used or installed ready to use by June 30, 2018.
According to this criterion, the value of such an asset’s depreciable portion can be reduced by thirty per cent over the course of future years.
It is essential to take note of the fact that it has been suggested that this measure be prolonged until the 30th of June in 2019.
Make sure you pay the correct company tax rate.
In 2017-2018, the majority of businesses that have an aggregated yearly turnover of less than $25 million will be subject to a tax rate of 27.5 percent. However, the thirty percent tax bracket will still be applicable to certain businesses with annual revenues of less than $25 million, particularly those businesses that get almost all of their revenue from passive investments such as rent or interest income. Companies that are subject to tax at a rate of 27.5% are only permitted to frank dividends up to that percentage.
As the law stands right now, in order for a firm to be eligible for the lower tax rate in 2017-2018, the company’s annual revenue must be less than $25 million, and it must also be “carrying on a business.”
However, there is a proposal before Parliament to replace the “carrying on a business” test with a test that will require companies with a turnover of less than $25 million to earn no more than 80 per cent of that turnover from passive income such as rent, interest, and nett capital gains in order to qualify for the lower company tax rate company.
This test would replace the “carrying on a business” test currently in place. It is possible that this adjustment will have a different impact on particular organisations’ tax situations compared to the current law.
Firms, particularly those that hold investments, as well as the individuals who own companies, face an increased level of complexity as a result of both the existing legal framework and the planned amendment to it. Your tax agent who is enrolled with CPA Australia is in the greatest position to assist you with these matters.
Make Your Superannuation Payments On Time
It is imperative that contributions to employees’ superannuation funds be made before to the 30th of June in order for owners of small businesses to be eligible for a tax credit on those contributions. Contributions to employees’ super funds are required to be made every quarter, at the latest, 28 days before the end of the quarter. If you miss the deadline for even one quarter, the contribution to the superannuation fund is not tax-deductible.
Make Trust Resolutions By June 30
By the 30th of June, trustees of discretionary trusts are required, as they always have been, to adopt and document resolutions regarding the manner in which trust income should be allocated to beneficiaries for the 2017-2018 fiscal year.
Imagine that by the 30th of June, a genuine resolution has not been put into action. In such a scenario, any beneficiaries designated by default in the deed will acquire a present entitlement to trust income and be liable for taxation (even if they do not receive any cash distribution), or the trustee will be subject to an assessment at the highest marginal tax rate on any taxable income generated by the trust but not distributed by the latter.
Before the end of the year, a trustee needs to be able to demonstrate how an effective resolution was reached by documenting it in the form of minutes, file notes, or an exchange of correspondence. On the other hand, the trust’s accounting does not need to be done by the 30th of June.
Because a corporate trustee may need some time to advise its directors that a meeting must be summoned to pass and record a resolution, a notification of this nature should be distributed well in advance of the date of the deadline, which is June 30.
Seek Professional Advice When Starting A Business
Instead of being deducted over a period of five years as was previously the case, professional expenses such as legal and accounting fees that are linked with launching a new business are now deductible in the same year that they are incurred.
If you started a business throughout the course of the year, you should discuss the possibility of deducting the cost of professional assistance from your taxes with a tax agent who is registered with the CPA Australia.
It is important to keep records of the distribution of trust capital gains and franked dividends to beneficiaries.
If the trust deed allows the trustee to make a beneficiary “specifically entitled” to certain sums, then the trustee of a discretionary trust has the ability to distribute capital gains and franked dividends to several beneficiaries.
This applies to both types of income. Before the 30th of June, the trustee is required to document this resolve, and the beneficiary receives or has the right to receive an amount equal to the nett financial benefit of that gain or dividend.
The Tax Act has a set of simplified trading stock regulations, according to which you are permitted to include the same stock value at year’s end as you did at the beginning of the tax year if the value of your trading stock did not change throughout the course of the tax year by more than $5,000.
When certain pre-paid business expenses are made by a small firm before the end of the fiscal year, the owner may be eligible for an instant tax deduction for the amount. Imagine for a moment that payment covered a cost that has been carried over into the new fiscal year (such as insurance premiums, rent or membership of a trade or professional body).
In that situation, you could be eligible to make a claim for that deduction in the most recent fiscal year. Check all of your payments made from the beginning of the year through the 30th of June to determine whether anything qualifies.
Give Your Business A Health Check
At the close of the fiscal year, it is a good idea to take stock of how well your company is doing and to consider areas in which it could be possible to make improvements. It’s possible that this is the only time of the year when you have a full set of accounts to examine how much money the company is producing and where it’s coming from, how much money the company is spending and where it’s going, and where the risks are in the company.