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:
- 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
What is a small business?
From a taxation standpoint, a business’s geographical size or number of employees doesn’t determine whether it’s a small business. Only 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.
Strong record keeping and tracking split expenses
The number one rule for any small business is to track any expenses incurred and income earned during the financial year.
The Australian Taxation Office (ATO) requires records to be kept for five years and includes any expenses from assets to advertising costs and 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 with 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. 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 when from their tax lodgement.
Small business capital gains tax concessions
When I 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 businesses 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 including the 15-year exemption, 50 per cent active asset reduction, retirement exemption and rollover.
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 in order 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 all deductions available for their own assets and fit-out.
With the increased instant-asset write off available until the end of this financial year, it’s never been easier to claim more this tax time. This write-off allows any business with an aggregated annual turnover up to $500 million to instantly write-off any plant and equipment asset valued up to $150,000.
This increased threshold applies for assets purchased from 2 April 2019 but not first used or installed ready for use until 12 March 2020 to December 2020. 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.
If a business first used or installed an asset before the 12 March 2020 they could still claim the instant asset write-off this financial year. Under the previous arrangement, businesses with an aggregated annual turnover of up to $50 million can claim the instant write-off for assets valued up to $30,000. This is available for any eligible assets first used from 2 April 2019 to 11 March 2020.
A tax depreciation schedule is an essential for unlocking lucrative depreciation deductions. A schedule lasts the lifetime of the property 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.
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.