Get your records organised to reduce the stress of tax time. If you’re doing your taxes yourself or using a registered tax agent, the first step is to get your accounting records up to date. If you dread this type of work and have been putting it off, the services of a bookkeeper can help you get your accounts in order. Besides meeting your tax obligations, good record keeping will enable you to manage cash flow and get a clearer picture of how your business is doing.
Know your relevant concessions
Officially, a small business in Australia is defined as having a turnover of less than $2 million. A few of these concessions include:
- Simplified trading stock rules – if you estimate the difference between opening and closing trading stock is $5,000 or less, you won’t need to do a stock take.
- Immediate deductions for start-up costs – including costs associated with legal, accounting, and professional advice.
- The instant asset write-off – to write off assets for the 2020-2021 tax year, you will need to purchase and use or install the asset by 30 June 2021. This concession applies to second-hand assets as well. Read our in-depth guide about the instant asset write-off.
- Pooling most assets costing $30,000 or more – you can deduct 15% of the cost of assets in the first year (regardless of when they were purchased) and deduct 30% in each subsequent year.
Know your deductions
Ensure you’re aware of all the relevant tax deductions you can claim for your business. Consider the following deductions, and do further research to find any others that may apply to your specific business:
- Advertising expenses
- Accounting costs
- Bad debts – written off before 30 June
- Bank charges
- Business travel
- Business and professional association membership fees
- Employee education expenses – FBT might apply
- Employee entertainment – FBT might apply
- Home office expenses – apportion space used exclusively for business and deduct insurance, rates, and other expenses
- Insurance premiums – for some types of insurance, including workers compensation, fire, business vehicle, loss of profits and theft
- Interest expense (see below)
- Legal expenses
- Motor vehicle expenses – pro rata for the business portion of vehicle use
- Printing and stationery
- Professional development – if related to the role or business
- Rent of business premises – apportioned for home offices
- Salaries and wages to employees
- Superannuation contributions
Please note, this is not an exhaustive list, so consult your tax accountant to determine which deductions are appropriate to your business.
Some interest is tax deductible. But interest expenses need to meet certain criteria to be deductible:
- The interest must be substantially connected to income-earning activities of the business.
- If a new loan is taken out to repay an existing loan, it is deductible if the first loan was connected to producing income for the business.
- The interest on funds borrowed to pay a tax debt can be deducted.
For more information on what you can and can’t deduct, the ATO’s website is a great resource for business owners. However, you can always consult your tax accountant to get a clearer picture of how your business can benefit.
If you are a sole trader, check out our Short Guide to Sole Trader Tax.