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?
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.