End Of Financial Year Tax Tips For Australian Small Businesses

Are you the proprietor of a small business in Australia? If this is the case, it is imperative that you are familiar with the end of the fiscal year tax advice that are relevant to your country. As the current fiscal year draws to a close, there are a number of key points that should be kept in mind, which we will discuss in more detail in the following blog article. In addition, we will supply you with some useful information so that you can launch into the process of preparing your taxes.

It is once again that time of year when owners of small businesses need to start thinking about the taxes that will be owed at the conclusion of the fiscal year. This can be a challenging endeavour for many different owners of businesses. You may, however, make the procedure significantly less stressful by adhering to a few straightforward recommendations. As the end of the fiscal year draws closer, it is important for small businesses to be aware of several important tax guidelines, which will be covered in this blog post. Don't worry about it if you're feeling overwhelmed because we've got it covered for you!

The end of the fiscal year is almost approaching, which means that tax season will soon follow. If you are the owner of a small business, it is imperative that you are aware of the adjustments that have been made to the tax system for this year, and that you make sure you are taking advantage of all the deductions and credits that are available to you. In this article, we will provide you with an overview of the most significant tax changes that will have an impact on small businesses, as well as some suggestions on how to lower your overall tax liability. Continue reading to learn everything you need to know about the end-of-financial-year taxes that apply to small businesses in Australia!

A Guide to the Australian Tax System for Small Businesses

It is not difficult to comprehend the rationale behind the assertion that the sector of small businesses represents the "engine room" of the economy and the "largest employer 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 in Australia. This number does not account for primary production concerns; nevertheless, it does account for approximately 96% of all firms.

What Exactly Constitutes a Small Business?

In the context of taxes, a small business is typically understood to be one that has a yearly turnover of less than $10 million, with the exception of the small business CGT concessions, in which case the turnover level is simply $2 million.

The law says that turnover needs to be determined from the 'aggregated' numbers, which simply implies annual turnover (gross revenue, less GST) of any 'related' or 'associated' business. This is done to prevent enterprises from dividing activities so that they can sneak in below the $10 million level and receive access to the different tax incentives.

Taxes And Small Businesses

The fact that the government provides tax breaks to the small business sector for a variety of different reasons is evidence of the significance of the small business sector.

Provisional Full Expensing

The government has enacted a significant package of reliefs for businesses in order to encourage enterprises to invest tax effectively in new capital assets. This is being done in an effort to give businesses a boost out of the blues that would be caused by COVID in the year 2020.

The tax break, which is known as "temporary full expensing" (or TFE for short), enables businesses to deduct the full cost of eligible capital assets from their profit for the year rather than depreciating the cost over the course of several years. This is in contrast to the traditional method of depreciating the cost over the course of several years. The new regulation will go into effect on October 6th, 2020.

The new measures could (with some very substantial limitations) represent a significant potential to enhance your business this year, particularly for smaller enterprises. However, these opportunities come with certain restrictions.

The whole purchase price of any and all capital acquisitions can now be promptly deducted by businesses. This includes the following types of purchases:

• Fixtures and fittings, such as the interior design of a café or shop
• Technology, including mobile devices, desktops, point-of-sale terminals, and surveillance and alarm systems
• Plant, machinery, and equipment
• Office furniture
• Motor vehicles such as utes, delivery vans, and the majority of cars (with the exception of cars costing more than $59,136) are included in this category
• Motorbikes
• Solar systems

Businesses must demonstrate that their total yearly sales are less than $5 billion for them to be considered eligible. When discussing "aggregated" turnover, it is important to note that it is necessary to include the turnover of any and all parent companies, even those based overseas.

In addition, companies that have a total turnover of more than $5 billion but a total income in Australia of less than $5 billion are also eligible for the tax reduction, provided that they had previously spent more than $100 million in the fiscal years 2016–17 through 2018–19. This indicates that large multinational corporations, whose annual revenue typically surpasses $5 billion, still have a chance to gain anything from this opportunity.

Because the requirement for annual turnover is so high, virtually all companies operating in Australia are eligible to participate in the programme.

TFE applies to newly purchased depreciable assets as well as the costs of making changes to previously qualified assets (even if the existing assets were acquired before the scheme started).

Small and medium-sized firms (those with an aggregated annual turnover of less than $50 million) are eligible to deduct the full purchase price of used assets from their operating expenses. Businesses with an annual turnover of $50 million or more are not permitted to include second-hand assets in their valuations.

The following are the primary types of assets that do not qualify for the complete write-off of their costs:

• "Expensive" automobiles are those with a price tag that is greater than $59,136
• Structures and other assets that are qualified for deductions under the capital works category
• Assets located in other countries
• Some major production assets (such fence and water infrastructure, for example) already have an instant write-off programme in place, and this programme is still in effect
• A company's resources that aren't being put to good use.

The cost of so-called luxury automobiles can be depreciated up to a limit of $59,136 (excluding GST), but anything that costs more than that cannot be depreciated at all. This rule, which has been in effect for a considerable length of time in relation to the depreciation of cars, has been transferred to TFE. The purpose of the law, in a nutshell, is to stop companies from using the money they get from taxpayers to buy flashy luxury vehicles.

The limit on pricey cars does not apply to motorcycles or other motor vehicles that aren't considered cars for the purposes of taxation. Because of this, commercial vehicles like vans, buses, and trucks can have their entire cost completely written off, regardless of how much they cost. The fact that some of the larger utility vehicles are also considered to be business vehicles rather than cars is a very important consideration (for example, for tradespeople).

Consider for a moment that the utility vehicle has a load capacity of more than one tonne (the dealer or manufacturer should be able to confirm this). In that scenario, we do not count that towards the car limit because we do not consider it to be a car. This is a potential opportunity to buy the vehicle and write off the entire cost, as some of the larger and more expensive utes actually cost more than $59,136.

Take note that the last exclusion excludes TFE claims for capital assets used in a non-business capacity, such as assets purchased by investment property owners or assets utilised in your job. This is the case because the exclusion applies to assets used in a non-business capacity.

If you utilise the asset for both business and personal reasons, you are required to proportionately reduce any TFE deductions you claim. For instance, if you buy a new computer for $2,500 and utilise it equally split between your personal and professional lives, the maximum amount of the purchase that you may deduct from your taxes is $1,250.

Final Tax Planning Advice For Australian Small Businesses

The sun has gone down, the sales have begun, and the hearts of Australia's accountants are filled with dread at the sound of every ringing phone. It's that time of year again, folks: the time to file your taxes.

The last month of the fiscal year is presumably treated the same as any other by the few owners of small businesses who have a firm grasp on both their financial situation and their legal responsibilities regarding taxes (must be nice). The dreaded deadline of July 1 is drawing near, and for the great majority of taxpayers, this means a mad dash to dig up old receipts and a frantic search on Google for information about which deductions can be submitted.

For the last few days of the 2017–18 fiscal year, SmartCompany has compiled a list of tax tips and advice to help you get your affairs in order and your claims perfected before it's too late. This list is intended to help alleviate some of the stress that you may be feeling as a result of the pressure.

Make The Most Of The Immediately Applicable Write-Off Of $20,000 In Assets

The government has continued to play small and medium-sized businesses for fools by prolonging the popular $20,000 quick asset write-off programme for only one year at a time, despite the fact that there have been persistent calls for the government to make the much-loved programme a permanent fixture.

Regardless, it will continue to be in effect until the 30th of June this year, during which time owners of small businesses can still claim a maximum of $20,000 worth of assets for their companies. In a nutshell, if you buy an asset (such a new coffee maker or circular saw, for instance), you can immediately claim a deduction for the amount 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.

The quick write-off of up to $20,000 for assets like automobiles, tools, and other property is especially beneficial for self-employed employees who rely heavily on their own property.

Cash flow is of the utmost significance to proprietors of businesses operating in this sector, and any aid that promotes the expansion of businesses through improved cash flow is good.

A word of caution to those who own small businesses and those who are self-employed in particular is to avoid over-extending your company in the search of tax benefits if doing so will not leave enough cash in the bank to cover operational expenses.

Receive Your Deductions!

When it comes to filing taxes, it is usual practise 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.

A crackdown on so-called "standard" deductions is at the top of the ATO's hitlist for this year. Assistant Commissioner Kath Anderson has issued a warning to taxpayers not to try to claim standardised deductions simply because they believe they are entitled to them.

People have the misconception that they are entitled to something, even though they have not actually put any money into it. You must have used up at least some of the money.

It has to be connected in some way to the earning of your income, and you have to be able to demonstrate to us how the claim was computed.

Acquaint Yourself With The CGT Changes

The government has now provided clarity for owners of small businesses regarding the changes that will be made to the small company capital gains tax discounts for when SME owners sell their businesses. These changes were first announced in the budget for the previous fiscal year.

Draft legislation that was published in February suggests that there will be new tests to establish if a CGT asset is "active," as well as new criteria that SME owners must be carrying on a business prior to the occurrence of a CGT event (the sale of the business).

The most significant alteration, however, is that firm owners themselves are required to pass a net asset test of $6 million, which mandates that their entire net assets must be lower than $6 million. In addition, the corporate entity itself must be able to pass the test. Treasury had planned to implement this legislation retroactively to July 1 of the previous year, but reversed their decision once it became clear that some business owners would have been unknowingly left with tax payments in excess of $500,000.

This week, Parliament is debating the final aspects of the changes, and if they pass, they will come into effect immediately, having been slated for retrospective implementation from the time the draught legislation was released in February. If the changes do not pass, however, they will not come into effect until further notice.

Make Use Of The Deduction For Income Tax

If your annual revenue is less than $5 million, you may be eligible for the small business income tax offset, which reduces your tax liability by up to one thousand dollars if your business is not incorporated and your revenue is less than that amount. At the moment, the offset is equal to 8% of the tax that must be paid on the income from your business; however, this percentage is expected to rise to 16% by the year 2027.

It is important to note that this advantage is available to sole proprietors as well as individuals who share in the net revenue of a small business generated by a partnership or trust. These compensating factors are quite significant, particularly for proprietors of microbusinesses who are still in the expansion stage.

The encouragement of these enterprising individuals will contribute to the acceleration of productivity and innovation throughout the economy.

Check Whether Other Responsibilities Outside Record Keeping Need To Be Carried Out

As the owner of a small business, some of the yearly responsibilities you have may include the following:

• a synopsis of one's revenues and expenditures as presented in a profit and loss statement
• performing a stocktake will taking you to an external webpage on the website of the Australian Taxation Office (ATO), where you may learn about stocktakes and assets.
• summary information regarding your list of debtors and creditors
• collecting documentation of property acquisitions and expenses incurred for home upgrades (to calculate depreciation expense claims and for capital gains tax)
• filing your annual income tax returns and submitting them on time
• the submission of annual reports or returns for
• pay as you go (PAYG) withholding, including putting the finishing touches on the income statements for one touch payroll
• fringe benefits tax (FBT)
• goods and services tax (GST)
• the system for the reporting of taxable payments
• meeting superannuation requirements
• converting any paper records into digital format and backing them up regularly.

Determine The Tax Deductions And Concessions That You Are Eligible To Claim

As long as they have a clear connection to the generation of your income, the majority of your business expenses are eligible for tax write-offs. For instance, if any of the following apply to your company, you can be eligible for tax deductions:

• has a website up and running
• has costs associated with motor vehicles
• employs diesel fuel
• runs from home
• incurred travel costs
• utilises mechanical devices, tools, or computer equipment.

You are required to keep records as proof of the deductions for business costs that you are claiming.

Consider utilising the myDeductions option within the ATO app to keep track of the money you make and spend on your business throughout the course of the year if you run a sole proprietorship.

Think about what you want to accomplish before the end of the year. If you want to get a tax break, you should try to write off any debts or assets before the end of the year.

In addition, there are a variety of tax breaks and exemptions that are offered to help small enterprises. Take into consideration whether or not you will be able to utilise any of these before the conclusion of the fiscal year.

Make a Claim for a Tax Deduction

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. However, in order to be eligible for the deduction, you will need to provide justification for the spending, and it must also have been paid before you can claim 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 actually put any money into it. You must have used up at least some of the money. It has to be connected in some way to the earning of your income, and you have to be able to demonstrate to us how the claim was computed.

Get the Most Out of the Immediate Write-off of Assets by Doing so

The quick asset write-off programme has had its deadline pushed back to the 30th of June, 2020, and it now applies to assets that cost up to $30,000. Small to medium enterprises with an annual revenue of up to $50 million are eligible for the plan, which enables the owners of those businesses to instantly deduct assets with a cost of up to $30,000, which may then be claimed in their tax return for the income year in which they were purchased.

Therefore, be sure to take advantage of the quick asset write-off if your company has purchased an asset during this fiscal year (such as automobiles, tools, and office equipment) for up to $25,000 prior to April 2, and for up to $30,000 since April 2, 2019.

However, it is of equal significance to monitor how much cash is coming in and going out of the business. Even though the Instant Asset Write-Off Scheme lowers the amount of tax that your company is responsible for paying, this programme is not a rebate. Any purchases you make will still need to be able to be supported by your cash flow.

Going Forward, Always Be Prepared - Failing to Prepare Is the Same Thing as Being Prepared to Fail

The use of GST collected to manage business cash flow is a typical mistake that most operators of small businesses make. As a result, these operators find themselves in a bind when the ATO needs to pay these sums.

Putting money away as you earn it is the most effective strategy to get ready for making tax payments. As a result, your taxes will begin to build, and you will be prepared to pay them; this is a discipline that makes budgeting easier. This was one of the most helpful pieces of advice that I was given, and it was given to me by my very first advisor. Consider this money to be untouchable and not money that can be drawn from once it has been deposited into the account. At the end of the fiscal year, you will be relieved to see that you have your taxes prepared and saved.