It’s right in the middle of tax time and with key tax offsets and concessions on the table this year, it’s not only in your best interest to know what you could be eligible for this EOFY, it might be crucial.
Lower Tax Rate
Australian small to medium businesses are eligible for tax cuts. Business with an aggregated annual turnover of under $50 million might be eligible to receive a tax rate drop of 1% for the 2021-22 tax year, dropping the threshold from 26% to 25%.
The Federal and State governments want people hired. Through the implementation of the JobMaker scheme, SME’s can hire those people aged between 16—35 years and receive a payment towards hiring. The scheme is divided into two parts:
- Those aged 16 to 29 years and
- Those aged 30 to 35 years
Eligible employers can receive up to $10,400 over a year for 16 to 29 year old employees, and up to $5,200 for 30 to 35 year old employees. Eligibility criteria apply. Those employers hiring apprentices and trainees can apply for a wage subsidy to cover 50% of a trainee or apprentice’s wages. The JobTrainer package is a wage subsidy that applies to wages paid until the end of 2022.
Temporary Full Expensing
Temporary full expensing allows small and medium sized businesses (SMEs) to claim an immediate deduction on the full cost of assets that would normally be depreciated in the first year they are used or ready for use for a taxable purpose. Improvements made on assets can also be fully deducted. Assets must be bought from 6 October and first used or installed ready for use by 30 June 2023.
SMEs with an aggregated turnover of less than $5 billion is eligible to use temporary full expensing, with an alternative income test for corporate entities with an aggregated turnover of more than $5 billion.
Temporary Loss Carry-Back Scheme
This particular scheme allows eligible businesses with a turnover of less than $5 billion to offset losses incurred in the 2020-22 tax years against tax profits from 2019 to 2021. Eligible business can claim a full tax offset if they carry back tax losses against the tax they paid in the 2019 or 2020 income years.
Pro Tax Tip: To claim any of the eligible tax schemes for SMEs, make sure your record keeping is up to date and in good order.
Working From Home Short Cut Method
With millions of Aussies working from home due to lockdowns, the Federal government introduced a short cut method for claiming working from home expenses. This will allow those who are eligible to claim, an 80 cents per hour flat rate with only a time sheet or working roster to provide as proof. Be aware that this replaces all other working from home costs as part of using this method.
Pro Tax Tip: The cost of record keeping and using a tax and BAS agent, as well as your bookkeeping expenses are valid deductions and can be claimed against your business expenses.
Those wishing to reduce their tax bill have an ace up their sleeve by prepaying certain expenses. Expenses such as rent, insurance subscriptions that are due in the 2022 financial year can be paid in the 2021 financial year to help reduce your 2021 tax bill. Up to 12 months of expenses can be deducted in the current tax year.
Reviewing and postponing invoices can help reduce your income. Beneficial tax savings are made by deferring the tax liability until the next financial year. A long term strategy and advice of a tax agent is best if using this strategy.
Alternatively, if you’re expecting a higher income in the next financial year, consider bringing forward invoicing into the current year, paying expenses that are due and purchase equipment or business assets needed.
Pro Tax Tip: Seek the advice of a professional. Tax deductions are not a dollar for dollar deduction. Although there are ways to reduce your tax obligations, it’s best to understand how these will impact on the financial position of your business.
Cash strategy for GST
A cash strategy versus an accrual strategy might be a better proposition for your business. Using a cash accounting system, GST is paid to the ATO on payment actually received, not when the invoice is issued and might be good for improving cash flow.
Tax time is the perfect time to analyse if your business should be moved over to a different structure. There are tax advantages to be made that are only available to certain structures. For example an SME might be financially better off moving assets to a trust, or a family partnership might be better operating as a family trust to negotiate capital gains tax. Take this opportunity to crunch some numbers and make the move to streamline your expenses and tax bill.
Australian businesses of all sizes are now required to report using Single Touch Payroll (STP). With each payroll, business are required to report their employees PAYG and super information directly to the ATO. You’ll need to tell your employees that you’ll no longer supply them with a payment summary, and that they’ll be able to see their payment details on their income statement. A tax agent can access this information when they lodge an individual’s tax return.
Without proof, you won’t be able to claim work-expense deductions. Businesses need to keep detailed records to justify end of year and GST reporting requirements.
Income tax records the Australian Taxation Office (ATO) requires you to keep include:
- Sales invoices, receipts cash register tapes and cash sales
- Receipts, cheque book records and tax invoices
- List of creditors and debtors, stock take information and depreciation schedules
- Bank statements and records
- GST invoices from suppliers
ITP Accounting Professionals have helped Australian individuals and small business with their tax affairs, bookkeeping and financial advice for 50 years. That’s a lot of experience to be taken advantage of. Phone 1800 367 487 and chat with a friendly professional today.