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7 tax tips for small business owners this financial year

BMT team — Fri, 12 Aug 2022 02:36:00 +0000

The Australian small business sector generates millions of jobs for the local economy. The current environment is challenging for many businesses and it’s more important than ever for owners to maximise their cash flow this financial year. In this article we will explore 7 tax tips for small business owners: What is a small business? Strong record keeping and tracking split expenses Claim pre-paid expenses Don’t forget the Small Business Income Tax Offset Small business capital gains tax concessions Deducting ‘bad’ debt Increase depreciation deductions Key points: A small business is identified as a business with an aggregated annual turnover less than $10 million Strong record keeping and tracking split expenses is key Maximising cash flow is easier than ever with the increased instant asset write-off What is a small business? From a taxation standpoint, a business with an aggregated annual turnover of less than $10 million can be classed as a small business and take advantage of the several tax concessions. A business’s geographical size or number of employees doesn’t determine whether it’s a small business. Strong record keeping and tracking split expenses The number one rule for any small business is to track all expenses incurred, and income earned during the financial year. The Australian Taxation Office (ATO) requires records to be kept for five years. Expenses may include things like replacing assets, advertising costs or business travel. Every small business owner must keep their personal expenses separate to business-related expenses. For example, if a business owner uses a vehicle for both personal and business use, expenses must be apportioned appropriately. Claim pre-paid expenses There are a number of common small business pre-paid expenses that can go beyond the current financial year including insurance premiums, rent, a tax depreciation schedule and memberships. If any small business owner has made any pre-paid expenses, they can claim this expense in the financial year it occurred. Don’t forget the Small Business Income Tax Offset The small business income tax offset offers small businesses a tax offset of up to $1,000 per year. This offset is currently available for unincorporated small businesses with an aggregated turnover of less than $5 million from the 2016-17 financial year and onwards. This can be particularly beneficial for businesses in the start-up phase. Small business owners don’t need to apply for the offset as the ATO will work this out from their tax lodgement Small business capital gains tax concessions When a business sells an active asset and makes a profit, they must pay capital gains tax (CGT) on this capital gain in the same financial year. Small business CGT concessions can significantly, sometimes completely, reduce the CGT a small business is required to pay for an active asset. There are four key concessions available for eligible small businesses: the 15-year exemption, 50 per cent active asset reduction, retirement exemption and small business roll-over. Deducting ‘bad’ debt An unpaid debt to a business is deemed as a ‘bad’ debt. This type of debt can be a tax deduction for the business if it was included in their assessable income in the present or previous income year. There are several conditions that must be met for a debt to qualify as a bad debt. If it does qualify, it can be written off as a tax deduction. Increase depreciation deductions It’s crucial for small business owners to claim depreciation deductions to maximise their cash flow. If a small business owner is a tenant of a property, they shouldn’t dismiss claiming depreciation. Commercial tenants can claim deductions for their own assets and fit-out. With temporary full expensing available until the end of the 2022/23 financial year, it’s never been easier to claim more this tax time. This write-off allows any small business with an aggregated annual turnover of less than ten million dollars to instantly write-off any plant and equipment asset of any value. Some common assets a business could claim as an instant write-off include business vehicles, machinery, new software, point-of-sale devices and fit-out assets such as shelving, flooring and interior design. Other available incentives include the backing business if they have an aggregated turnover of less than $500 million and available in the 2019-20 and 2020-21 income years. Also, the immediate write off of the small business low value pool balance in full under the temporary full expensing rules. A tax depreciation schedule is an essential for unlocking lucrative depreciation deductions. A schedule lasts the lifetime of the property (forty years) and the fee is 100 per cent tax deductible. Consult with a commercial depreciation expert BMT Tax Depreciation has been trusted by commercial property owners and tenants Australia-wide for over 20 years. We have completed tax depreciation schedules for many small businesses across all industries. A BMT report takes all business incentives into account and applies them where applicable. To learn more about claiming depreciation and the commercial tax depreciation services BMT offers, Request a Quote or contact the team on 1300 728 726.

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Understand the small business CGT concessions

BMT team — Tue, 02 Jun 2020 23:45:27 +0000

No two investments are the same and this is highlighted when we talk about capital gains tax. There are several small business capital gains tax (CGT) concessions that owners must be aware of before they consider selling their commercial property or any assets used by the business. In this article we will look at: What is capital gains tax? Small business and CGT Basic conditions of the small business capital gains tax concessions The small business CGT concessions 15-year exemption 50% active asset reduction Retirement exemption Rollover Capital gains tax and depreciation for small businesses What is capital gains tax? When you sell any investment, you need to pay a tax on the capital gain made from that sale. This tax is called capital gains tax, or CGT. Any income-producing asset such as property, a business vehicle or shares will have an assessable capital gain if they sell the asset at a profit. This capital gain is used to calculate the payable CGT by the business or individual for the same financial year. Small business and CGT The Australian commercial industry encompasses many small businesses. The Australian Taxation Office (ATO) recognises that small businesses are in a unique position, in comparison to larger companies. This results in four small business CGT concessions for any asset the business owns and eventually sells, including property. Basic conditions of the small business capital gains tax concessions Before we cover the concessions, it’s important to understand the four key steps involved in determining whether the asset’s owner meets the basic conditions set out by the ATO. If the owner meets the conditions, the small business concessions will apply for the CGT event of the asset. The four steps look at several factors such as the aggregated turnover of the business, whether the asset is an active asset as determined by the ATO, if the asset in question is a share in the business or trust and conditions around membership interests in a partnership. Each step must also be considered in their set order. The requirements for each test can be complex, and we always recommend that small business owners consult with their accountant to determine whether they meet each step. The small business CGT concessions Once the basic conditions are met, the owner can apply any relevant small business CGT concessions to the sale of the asset in question such as property or any other asset the business owns for operations. 15-year exemption When a small business has owned an active asset for 15 years and the owner is aged 55 or over, retiring or permanently incapacitated, any capital gain is exempt from CGT. If the 15-year exemption is met, any need to assess a capital gain is totally removed and the owner won’t need to apply for further concessions. 50% active asset reduction If the small business is not eligible for the 15-year exemption and still meets the basic conditions, they may look to active asset reduction. Small businesses can reduce the capital gain on an active asset by 50 per cent. If eligible, this can be applied on the remaining value once the capital gain has had any capital losses offset and the 50 per cent CGT discount applied. Retirement exemption The retirement exemption can be used in addition to or instead of the 50 per cent active asset reduction if certain conditions are met. Under this exemption, capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000. However, if the small business owner is under 55, the exempt amount must be paid into a complying super fund or retirement savings account. Rollover A small business can defer all or part of a capital gain from the sale of an active asset for two years or longer if; they acquire a replacement asset or incur expenditure on making capital improvements to an existing asset. Further CGT events can happen if certain conditions are not met by the end of the replacement asset period. There are many intricacies of CGT events, and we recommend consulting with your accountant as only they can provide advice on CGT events. Capital gains tax and depreciation for small businesses When a small business owner owns their commercial property and they claim property depreciation, it can impact their cost base. Given that the property’s cost base is used when calculating any capital gain made from a sale, this can increase the payable CGT. All small businesses that either own the property or are a tenant can benefit from thousands in depreciation deductions. Unlike residential tenants, commercial tenants can claim depreciation on any fit-out they install. Common examples include carpet, desks and shelving. BMT Tax Depreciation has completed thousands of tax depreciation schedules for all types of commercial properties. BMT understands that every property is different and has helped thousands of small business owners maximise their cash flow with depreciation deductions. For more information on commercial property depreciation, contact the expert team at BMT on 1300 728 726 or Request a Quote.

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Can I claim depreciation when operating a home-based business?

BMT team — Mon, 23 Sep 2019 00:17:12 +0000

When operating a home-based business, many owners are not aware of the lucrative depreciation deductions available. If you’re one of them, you may be missing out on thousands of dollars. With improvements in technology and the convenience and flexibility that working from home provides, according to business.gov.au ‘nearly one million people [are] running a business from home [with] home-based businesses [now] a large part of the Australian business community’. In this article we will explore: What expenses can I claim when working from home? What are the rules? What type of insurance do I need? What expenses can I claim when working from home? Substantial tax depreciation deductions are available to home-based business operators. The ATO allows owners of income-producing properties to claim depreciation deductions on both the structure of a building (capital works) and easily removable assets (plant and equipment). When operating a home business, the same rules apply to the area of the home and the assets within it that are used solely for income-producing activities. Home based business operators can claim an apportioned tax deduction for use of home office utilities and business phone costs (not including phone installation). In some cases, you can also claim occupancy expenses including rent, mortgage interest, insurance and rates, but it’s best to consult your accountant to confirm if your specific business qualifies. If you own your home, you can also depreciate a portion of the cost of your house that’s used to run the home-based business. Additionally, owners can deduct the cost of any repairs made directly to the office area. Let’s look at a case study showing some of the available deductions and the significant difference claiming these deductions can have on a home-based business operator’s cash flow. In the example above, the original value at purchase is shown for each item. Using the diminishing value method, BMT calculates the first-year deductions available would be $3,405 in total plant and equipment depreciation. Over five-years, depreciation deductions amount to $7,983. Total capital works depreciation over the first year is $171 and over five years totals $854. The owner of this small business home office can claim a total of $3,576 in tax depreciation deductions during the first year and $8,837 over a five-year timeframe, improving the cash flow of the business. What are the rules? For a home office to be eligible for tax depreciation deductions, there are three main rules stipulated by the Australian Tax Office (ATO) that must be complied with. You must operate your business from your home You must carry out income-producing work from home Expenses incurred must be in direct relation to using your home to operate your business. Small businesses with turnover up to $10 million (from 1 July 2016) are eligible for an instant asset write-off of $30,000 for assets purchased from 2 April 2019 to 30 June 2020. Different instant asset write-off thresholds apply for purchases made before then. In the example above, if the home business is a small business, all assets shown would be eligible for the instant asset write off. Assets with a value above $30,000 can still be deducted over time using the small business pool. These assets can be claimed at a rate of 15% in the first year they were purchased and used or installed, then at 30% each year following. Once the asset value falls below $30,000, they can be instantly written off. Capital gains tax (CGT) is the amount paid to the government when you sell an asset that has increased in value over time since you purchased it. Generally, a home is exempt from CGT, unless part of the home is income producing and you acquired your home on or after 20th September 1985 (when the tax on capital gains began). According to the ATO, in most cases ‘you can ignore a capital gain or loss you make when you sell your home or main residence (under the main residence exemption).’ If you started using your home as your primary business location after 20 August 1996, you cannot claim ‘capital gains and the main residence exemption’ for the time prior to this date. You would then need to use the market value of your home from the date you started using it to produce income. For this reason, it’s recommended you obtain a valuation on your home when you start operating a home business. Otherwise, you may find when you sell the property, you’re required to pay more in capital gains tax. With your home-based business, you may also be eligible to apply for small business CGT concessions to reduce your capital gain. What type of insurance do I need? Operating a business from home can bring certain financial risk. Manage the risk with an appropriate level of insurance, as home and contents insurance is likely to only cover residential use, rather than activities relating to your business operations. Depending on the type of business you’re operating, it’s wise to look at business-specific insurance. If you don’t already have insurance or you’re unsure if your insurance is adequate, contact BMT Insurance. Operating a home-based business can be both exciting and daunting. The independence, lifestyle, flexibility and tax deductions can make it all worthwhile. To find out more about how depreciation deductions can help your home based business, Request a Quote or contact the expert team at BMT Tax Depreciation on 1300 728 726.

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Instant asset write-off increased to $30,000 until 30 June 2020

BMT team — Tue, 07 May 2019 04:05:02 +0000

UPDATE – The Australian Government has announced a $17.6 billion economic plan in response to the challenges posed by the coronavirus, including increasing the instant asset write-off threshold. Click here for more information. In good news for small and medium business owners, the federal government wasted no time in passing changes to the instant asset write-off scheme outlined in the 2019 Federal Budget. The instant asset write-off threshold was increased from $25,000 to $30,000 and eligibility extended to businesses with annual revenues of less than $50 million. This allows these business owners to immediately write off depreciable assets that cost their business less than $30,000. Business owners can therefore claim a deduction for an asset in the same income year as the asset was purchased. In a tighter economic climate, these amendments provide small to medium business owners with the opportunity to invest in new essential items whilst minimising the impact on their cash flow. However, the rules are much more complicated and it’s important for business owners to understand how these changes will affect them and why they should seek guidance from a Quantity Surveyor and an Accountant before lodging their annual income tax return this year. In this article we will look at: What is an eligible asset? What do the changes mean for business owners and their Accountants? What happens when the new instant asset write-off rules end? BMT Tax Depreciation are experts in small and medium business depreciation What is an eligible asset? Small and medium business owners can use the instant asset write-off for any depreciable plant and equipment asset or fit-out installed in their business. The pool of eligible deductible items is broad and ranges from office furniture, blinds, workstations and light fittings to more specific industry assets such as commercial ovens in restaurants, bedding and furniture in hotels, barber chairs and cutting and styling workstations in hair dressing salons and medical or manufacturing equipment. However, the instant asset write-off applies only to certain depreciable assets. There are some assets that don’t qualify such as capital works (building construction costs) and assets leased to another party on a depreciating asset lease. What do the changes mean for business owners and their Accountants? As there have been a number of changes to the instant asset write-off rules in recent years, the amendments mean there will be three threshold tiers for businesses and their Accountants to consider for the 2018/2019 financial year: The first tier applies to depreciable assets valued less than $20,000 acquired before the 29th of January 2019 The second tier applies to depreciable assets valued less than $25,000 first used or installed between the 29th of January 2019 and the 2nd of April 2019 The third tier applies to depreciable assets valued less than $30,000 first used and installed after the 2nd of April 2019 Budget announcement and before 1 July 2020 The first two tiers will apply only to businesses with an aggregated annual turnover of less than $10 million, while the third tier is available to small to medium businesses with an aggregated annual turnover of less than $50 million. The rules revolve around the aggregated annual turnover of the business, which may change from year to year, potentially impacting the deductions they are eligible for in future years. Businesses should always seek guidance from their Accountant when determining the correct thresholds to apply. Assets that don’t qualify for the instant write-off can be depreciated using their effective life or, where eligible, by allocating to an accelerated low-value pool. The decline in value of a depreciating asset is generally calculated using its effective life as set by the Commissioner of Taxation outlined in Tax Ruling (TR2018/4), which is determined by how long it can be used to produce income. This considers: Whether it’s subject to wear and tear at a reasonable rate Whether it’s maintained in reasonably good order and condition The period within which it is likely to be scrapped, sold for no more than scrap value or abandoned The effective life is used to work out the asset’s decline in value (or depreciation) for which an income tax deduction can be claimed. Small businesses can add assets with a cost equal to or more than the instant asset write-off threshold and receive a 15 per cent deduction in the year of purchase and installation ready for use and a 30 per cent deduction from the second year onwards. At the end of an income year where the balance of the pool at the time, before applying depreciation deductions, has a total depreciable value of less than the applicable threshold, the remaining un-deducted value of the pool can be claimed in full. What happens when the new instant asset write-off rules end? From the 1 July 2020, the threshold will revert back to $1,000 for small business entities only. Medium sized business will need to work out their asset’s decline in value under the ordinary depreciation provisions after 30 June 2020. BMT Tax Depreciation are experts in small and medium business depreciation Given the complexities around the instant asset write-off, it’s more important than ever to work with a specialist Quantity Surveyor like BMT Tax Depreciation to ensure all asset deductions are identified and claimed correctly under this new ruling. Whether you’re purchasing a business which owns buildings and/or plant and equipment assets or you’re planning to purchase new plant assets and write-off existing ones, BMT can create a new depreciation schedule or update an existing one to ensure deductions are calculated correctly. Request a Quote today for a free estimate of your likely deductions or contact one of our expert staff on 1300 728 726.

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Tax break continues to help small business owners

BMT team — Fri, 09 Nov 2018 03:30:19 +0000

In a move that will help boost cash flow for small business owners, the Senate recently passed legislation to extend the $20,000 instant asset write-off to June 2019. Initially introduced in May 2015, the Australian government originally allowed small businesses with an aggregate turnover less than $2 million to claim a $20,000 instant asset write-off. In March 2017, as part of Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, the definition of a small business was extended and the $20,000 instant asset write-off was extended to include those enterprises with an aggregated turnover of less than $10 million. During the 9th of May 2017 federal budget, the instant asset write-off was extended until the 30th of June 2018. In 2018, the federal budget proposed to extend the legislation once more and after a long delay between May and September, the extension of the legislation to June 2019 was passed by the Senate on the 12th of September 2018. If you’re planning on using this tax break before the next financial year, it’s important you know exactly how it works. Why not put more money back in your pocket? this is a great time to help upgrade your small business for the long term. Let’s take a look at an example scenario of how one investor can take advantage of the instant asset write-off: Alice is a Chef with a small cafe she runs with her sister Sophie. Their rapidly expanding business is doing extremely well, and they’ve been thinking about purchasing new plant and equipment assets to help their business continue to grow and expand. Alice and Sophie would like to update the old espresso machine, replace their commercial fridge and look at installing a new security system. Alice and Sophie can buy a new espresso machine and take advantage of the $20,000 instant write-off as the new machine will cost them only $5,137 They can also purchase a larger cool room for $7,249, replacing their existing commercial fridge. This will cost less than $20,000 and will also be a valid purchase they can deduct immediately They can also choose to buy a higher end security system for the café and claim an immediate write-off for this item because the purchase price is just $2,229. Learn more: Order a commercial tax depreciation schedule Small business owners can use this instant asset write-off for any depreciable plant and equipment asset or fit-out installed in their business. Other examples of deductible items can range from office furniture, blinds, workstations and light fittings to more specific industry assets such as hospitality, medical or manufacturing equipment. It is more important than ever to work with a specialist Quantity Surveyor to ensure that all asset deductions are identified and claimed correctly under this new ruling. BMT Tax Depreciation can show you how to claim more deductions, pay less tax and see a greater return on your business. Request a quote today for a free estimate of your likely deductions or contact one of our expert staff on 1300 728 726.

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