2020 was a challenging year for the best of us. The changes brought about by Covid-19 were unprecedented. From the beginning of 2020, Australian endured bushfires, drought, lockdowns and floods. These events have had a massive effect of Australian individuals and businesses of all sizes. JopbKeeper and the cash flow boost were a few of the changes made to the economy for starters. As tax time 2021 rolls around, because of these irregularities, there are some key points to remember when it comes to lodging your tax return.
Business Concessions
Your small business might be eligible for business concessions such as the instant asset write or qualify for immediate deductions for prepaid expenses. If you’re running short on time, you may also be eligible to estimate your trading stock instead of undertaking a stock take.
The following table outlines the business concessions you might be eligible for:
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million | Turnover $50 million to less than $500 million | Turnover $500 million to less than $5 billion |
| Simplified depreciation rules – instant asset write-off | Yes | Yes | Yes | Yes | Yes | No |
| Backing business investment – accelerated depreciation | Yes | Yes | Yes | Yes | Yes | No |
| Temporary full expensing | Yes | Yes | Yes | Yes | Yes | Yes |
| Accelerated depreciation for primary producers | Yes | Yes | Yes | Yes | Yes | No |
| Deductions for professional expenses for start-ups | Yes | Yes | Yes | Yes | No | No |
| Immediate deductions for prepaid expenses | Yes | Yes | Yes | Yes | No | No |
Calculating and paying income tax
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million |
| Lower company tax rate changes | Yes | Yes | Yes | Yes |
| Increased small business income tax offset | Yes | Yes | No | No |
| PAYG instalments concession | Yes | Yes | Yes | Yes (from 1 July 2021) |
Simplified record keeping
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million |
| Simplified trading stock rules | Yes | Yes | Yes | Yes |
| Two-year amendment period | Yes | Yes | Yes | Yes |
GST, BAS and excise
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million |
| Simpler BAS | Yes | Yes | Yes | No |
| Accounting for GST on a cash basis | Yes | Yes | Yes | No |
| Annual apportionment of GST input tax credits | Yes | Yes | Yes | No |
| Paying GST by instalments | Yes | Yes | Yes | No |
| Excise concession | Yes | Yes | Yes | Yes (from 1 July 2021) |
Capital Gains Tax (CGT)
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million |
| Small business restructure rollover | Yes | Yes | Yes | No |
| CGT 15-year asset exemption | Yes | Yes | No | No |
| CGT 50% active asset reduction | Yes | Yes | No | No |
| CGT retirement exemption | Yes | Yes | No | No |
| CGT rollover | Yes | Yes | No | No |
| Contributions of small business CGT concession amounts to your super fund | Yes | No | No | No |
Fringe Benefits Tax (FBT)
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million |
| FBT car parking exemption | Yes | Yes | Yes | Yes (from 1 April 2021) |
| FBT work-related devices exemption | Yes | Yes | Yes | Yes (from 1 April 2021) |
Superannuation
| Concession | Turnover less than $2 million | Turnover $2 million to less than $5 million | Turnover $5 million to less than $10 million | Turnover $10 million to less than $50 million |
| Superannuation clearing house | Yes | Yes | Yes | No |
| Contributions of small business CGT concession amounts to your super fund | Yes | No | No | No |
Motor Vehicle Expenses
You can claim your vehicle expenses using the logbook or cents per kilometre method depending on your business structure and the type of vehicle. If you operate a franchise as a sole trader or partnership and the vehicle is a car, you’ll be able to use either method, however if you operate your franchise as a company or trust you can only claim using the actual cost method.
The Australian Taxation Office (ATO) defines cars for taxation purposes as motor vehicles, including four-wheel drives, designed to carry both a load of less than one tonne and fewer than nine passengers. Other vehicle types include motorcycles and vehicles used to carry either one tonne or more (such as certain utes) or nine passengers or more, for example a minivan.
Claimable expenses include fuel and oil, repairs and servicing, interest on a motor vehicle loan, lease repayments, insurance cover premiums, registration and depreciation.
Home Based Business
The business portion of running expenses is deductible if you run a home-based business. Your business structure determines what and how you can claim. Occupancy expenses such as mortgage interest or rent, council rates, land taxes and house insurance premiums can be claims, as can running expenses such as electricity, phone, decline in plant and equipment value, furniture, repair and cleaning. Some business travel may be tax deductible.
Some people may benefit from claiming the flat 80 cents per business hour rate. This shortcut method is available to be used from 1 March 2020 until 30 June 2021. This rate combined occupancy and running expenses, however no more claims are allowable.
Business Losses
If your business has made a loss this year, these losses may be carried forward and deductions claimed in a future year. You may be able to offset current year losses if you’re a sole trader or an individual partner in a partnership and meet certain conditions. You cannot claim a tax loss deduction or if the loss is related is illegal business activities.
Your business structure will affect whether you can offset and claim the loss in the current year, or if you will need to carry forward the loss and claim a deductions for it in a later year.
Eligible corporate entities with less than $5 billion turnover in a relevant loss year can carry back losses made in the 2019–20, 2020–21, 2021–22 and 2022–23 income years to a prior year’s income tax liability in the 2018–19, 2019–20 and 2020–21 income years and claim a refundable tax offset in your 2020–21, 2021–22 or 2023 company tax returns.
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JobKeeper
JobKeeper payments are taxable and need to be declared as income when you lodge your tax return. As a sole trader, your JobKeeper payments also need to be declared as personal income tax. Your partnership, trust or company needs to report JobKeeper as a part of its business income.
Recepts, receipts, receipts
If you claim a tax deduction, you must be able to prove your claim. The expense must already have been incurred and you must be able to prove your claim. The ATO can ask for receipts and your other documentation to prove your expenses for up to 5 years from when the expense was made or when you lodged your tax return. Records can be electronic if they are a clear and true representation of the original. Make sure you keep a backup copy in case of electronic failure. Records should all be in English or easily converted to English in the case of foreign issued invoices and receipts. ITP Accounting Professionals have helped Australian individuals and businesses with all aspects of their tax, businesses finances and business growth. Phone 1800 367 487 and chat with a friendly tax accountant today.