When it comes to Australian small business, you want to streamline your costs as much as possible. Most business owners think of reducing costs through reducing their utility expenses or using the best yet cheapest suppliers they can find to manufacture their goods or services – but many forget that potential savings on tax can save their business hundreds, if not thousands of dollars.
Most businesses look past simply planning for the tax side of things – from payroll tax to super guarantee contributions and GST, business might suffer hefty penalties, adding to costs that needed have been incurred. When it comes to tax, out of sight and out of mind does not mix.
Here are 6 common mistakes business make on their tax.
Last year especially, lead to several key changes to tax laws that were passed because of COVID-19. Both new laws came into existence and proposed laws brought forward in the federal budget. This was over and above tax laws that come into existence or have had changes made to them throughout the year. What may be legal one year may mean savings for Australian small business the next. Grants, tax offsets and concessions are some of the many ways small business can capitalise on their taxes, but fail to because of ignorance.
Using a professional tax agent or tax accountant is a business expense that can be claimed as a tax deduction. Tax agents are well versed in the intricacies of tax law and work towards claiming every cent in deductions as possible. After all – that’s their job! Many businesses miss out on tax savings because business owners are simply too busy to keep up with tax changes, let alone claiming GST credits, keeping up with PAYG, superannuation and the like. Many business owners overlook claimable deductions or are too lenient in what they can claim. A good tax accountant will make sure you’re getting all of the financial assistance and government support which is available and keep you in the loop if you’ll be affected by tax changes.
At the mention of bookkeeping, business owners take a deep breath and let out a long-suffering sigh. Keeping track of your records and also keeping all of the records required by the Australian Taxation Office (ATO) is a time consuming task – but completely necessary.
The ATO has three golden rules when it comes to claiming tax deductions:
- You must have already incurred the expense
- The expense must be business related
- You must be able to prove your expense
No records? No claim. It’s crucial to keep a track of your records, not only so you know how profitable your business is on any day of the week, but so you can claim your deductions at tax time, as well as your GST credits on your Business Activity Statement (BAS) throughout the year.
The ATO can ask to see your records up to five years from when you lodged your tax return. If you’re audited, you will want to be organised.
New legislation passed means that long term casual employees have the right to ask for a permanent contract and as such, can claim for entitlements. If you’re not on top of the current workers rights, it could be costly for your business. It’s important to review your long term casual employees and make sure your meeting all of the entitlements under the Fair Work Act.
Modern awards are also updated twice a year. Missing changes could mean you’re underpaying your staff and will also affect the PAYG tax and super guarantee you’ll need to set aside for each employee.
Don’t leave paying your employees super until the last moment. There are significant penalties imposed for missing payments. Don’t risk late lodgements as this is a cost to your business if you do.
Managing Tax Obligations
Cash flow for Australian Small Businesses can be tight, but managing your tax obligations so you can meet ongoing employee PAYG tax, GST payments and super contributions is completely necessary. Set aside a separate bank accountant and funnel a percentage of your earnings into that account and always make sure you have money on hand when it comes to meeting your tax obligations. Parting with money as you go is a better option than not having it there at all.
ITP The Income Tax Professionals have been helping Australians with their personal and business tax for 50 years! There’s not a lot they don’t know about tax. Maximise your tax return with an ITP Tax Accountant who will know all the claims you can make. Your money. Your pocket!