The tax office says it will be focused on addressing “common issues” with small-business tax returns this year and will be paying close attention to expense claims as end of financial year (EOFY) approaches.
Less than two months out from the end of the 2018-19 financial year, accounting professionals are advising businesses to start getting their affairs in order.
The Australian Taxation Office (ATO) has provided a list of five common errors they’ll be on the lookout for this year.
- Claiming of private expenses in the business.
- Failing to properly attribute personal and business use.
- Misunderstanding how tax applies for different and often complex business structures.
- Omitting income, including coupon sales.
- Not providing the necessary records for substantiating expense claims.
“This tax time the ATO will be focused on supporting small businesses to get it right through a range of services and tools available to them,” an ATO spokesperson said in a statement.
“We will also be focusing on addressing common issues we see when small business lodge their returns, and reinforcing our message around recordkeeping and claiming of expenses.”
The ATO says it has three golden rules for businesses claiming expenses.
- Ensuring money has been spent on your business and not for personal use;
- Where there is a mix of business and personal use, only claim the business portion; and
- Ensure adequate records are provided to substantiate expense claims.
BDO tax partner Mark Molesworth says it’s the time of year to start planning for tax.
“As the 2019 financial year draws to a close, both individuals and organisations should consider the key tax planning and compliance issues they need to attend to by June 30,” he said.
BDO has released a note to help businesses plan for tax time, filled to the brim with tips about everything from home office expenses to franking credits.
Don’t get frazzled
Stacey Price, the owner of Healthy Business Finances, says business owners are best off speaking to their accountant by June 1 at the latest to allow enough time to get organised.
Price advises businesses to take the temperature on their business by running reports into various operations, although the books have to be reconciled before that will be any help.
“People tend to get super frazzled at EOFY without even understanding their business profitability or tax position in the first place,” Price tells SmartCompany.
“Unless they understand where they currently are, any investment decisions are fraught with danger.”
Tax time can be a good opportunity to spend up, either to take advantage of the instant asset write-off or get a bigger tax deduction.
But Price warns businesses shouldn’t expect the ATO to deliver them any miracles in cheque form.
“If you are already in a business loss situation, spending extra money might not bring any immediate tax benefits,” she says.
The instant asset write-off got a boost in the lead up to the election and now covers assets up to $30,000, but that’s only for assets purchased after 7.30pm on April 2.
Businesses are also being advised the company tax rate for businesses with up to $50 million in annual revenue is 27.5%.
Trusts and franking credits
David McKellar of Allied Business Accountants says business owners with discretionary trusts need to make sure they file annual distribution resolutions before end of financial year or risk “disastrous” tax outcomes.
Companies need to ensure they have sufficient franking credits to ensure dividends can be considered paid, and 7A loan repayments also need to be made by June 30.
“The key message is to be organised and seek advice, because with proper planning, significant amounts of tax can be saved or deferred,” McKellar tells SmartCompany.
“This is particularly important if your circumstances have changed, are changing, or if you have had or are planning a significant event, such as the purchase or sale of a business or property.”
Advisory firm BDO advises businesses to consider the franking rate they’re subject to for the current financial year and next financial year.
“Where the company may move from a 30% franking company in 2019 to a 27.5% franking company in 30 June 2020, there may be advantages in paying franked dividends prior to 30 June 2019,” the firm said in a recent tax note.