Tax tips for small business

Tax time is a great opportunity to get your accounts up to date. Tips for tax concessions and more

Small business owners often interact with the ATO and their accountant throughout the year. Tax time provides an added opportunity to ensure your tax affairs are in order, obtain essential tax advice and see if you can improve your tax position.

You should obtain professional tax advice, especially in areas where more complex tax issues arise. This includes refinanced debt, losses, restructures, capital gains tax, personal services income, trust declarations and distributions, and private company loans.

If you are seeking advice, have made errors or need to correct your business records, speak with a CPA Australia-registered tax agent who can work with you to get things right. And get onto it early! While the ATO has been accommodating and supportive over the Pandemic years, they are less supportive if the problems have gone on for an extended period of time with no attempt at creating a solution.

The Basics

Getting the basics right has never been more important – good record keeping, correct account codes, properly accounting for private use, keeping lodgments and payments up to date and declaring all cash transactions are essential to assure yourself, your accountant, your bank manager and the ATO that your tax affairs are in order.

When keeping your records, make sure to:

  • record cash income and expenses
  • account for personal drawings and use of company money or assets
  • record goods for your own use
  • separate private expenses from business expenses
  • keep valid tax invoices for creditable acquisitions when registered for GST
  • keep adequate stock records
  • keep adequate records to substantiate motor vehicle claims.

Income

Covid-19 and disaster payments

Many businesses received COVID-19 or other disaster-related support from the federal and state governments during the year. The ATO has published information on the tax treatment of a range of federal, state, territory and local government assistance packages. You should also check the tax treatment of disaster assistance payments, and consult with your Accountant on how to manage these payments.

Personal services income rules

Deductions

Optimise depreciation deductions

Trading stock

Many small businesses use the simpler trading stock rules. However, supply chain disruptions mean that many inventories have varied by more than $5000, requiring a stocktake using the general trading stock rules. Consider which of the three valuation methods is most suitable for your business.

Write off bad debts

Small Business Technology Investment and Skills & Training boosts

Two new deduction measures were announced in the 2022-23 Budget: 

  1. Small Business Technology Investment Boost: an additional 20 per cent deduction available for the cost of business expenses and depreciating assets up to $10,000 that support digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services
  2. Small Business Skills & Training Boost: an additional 20 per cent deduction available for expenditure incurred on eligible training courses provided to employees.

However, these measures are not yet law and if the incoming government does not proceed with these measures, then you will not be able to claim the additional 20 per cent deduction.

To claim for eligible expenditure incurred between 7:30 pm AEDT 29 March 2022 until 30 June 2022:

  • claim the expenses as usual in your 2021–22 tax return, and
  • claim the additional 20% bonus deduction for this period in your 2022–23 tax return.

Tax payable

Company tax rate

Losses

CGT concessions

In addition to the more widely available CGT concessions, small businesses can access the following specific concessions:

  • 15 year-exemption
  • 50 per cent active asset reduction
  • retirement exemption
  • rollover
  • restructure rollover.

You can apply as many concessions as you’re entitled to until the capital gain is reduced to nil. There are rules about the order in which you apply the concessions, any current year or prior year capital losses, and the CGT discount.

The rules are complex and getting it wrong can be costly, so we recommend seeking advice before restructuring or disposing of assets and ensuring your business structure is designed to take advantage of the available concessions. 

Private use of company money or assets

Common ways to take or use money or assets from a company or trusts are:

  • salary and wages
  • fringe benefits
  • director fees
  • loans from the company
  • trust distributions or company dividends
  • allowances or reimbursements.

Trusts

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