The tax tips that can get you the big bucks
Small businesses need to be on top of their BAS statements because of a crackdown by the Tax Office, says accountant Nathan Kerr.
Mr Kerr, who owns Just FSG, said late lodgement resulted in an $850 penalty, plus interest.
He says businesses also need to ensure they keep accurate records, rather than leaving it up to their accountants to do their paperwork.
“A professional bookkeeper could cost $75 per hour, where most accountants cost over $200 per hour, ” he says.
“A lot of SMEs complain about their accountant fees though it is often because the accountant is having to do the bookkeeping, costing you an extra $125 per hour.”
RSM Bird Cameron says another money-saving tip is to pre-pay the cost of any service required to operate a business in the following income year.
For example, a business owner can arrange with their bank to pre-pay the interest on their business loan repayments due next financial year, and claim it as a deduction this financial year.
RSM Bird Cameron principal Corey Beat says this strategy can be used to offset business income in a particularly prosperous year.
In a similar way, companies can use income to buy business equipment or make other internal investments sooner than planned, effectively reducing the amount of tax to be paid in a particularly prosperous year.
Mr Beat says these funds can be used to grow or maintain a business instead.
“The pending reduction to the company tax rate from July 1 next year means that companies that do have the ability to defer income will obtain a cash-flow benefit for their business, ” he says.
Another tax tool which can be manipulated to the small business owner’s advantage is a mechanism which allows a company to opt for either a pooled depreciation rate, or a specific tax rate based on Tax Office rulings.
Businesses can claim the pooled tax rate — 15 per cent on new equipment and 30 per cent on old equipment — if they want the convenience of a simple return.
But if the business has a lot of technology, it may be worth the extra effort to identify the depreciation rate for each item, which can be as generous as 66 per cent.
Mr Beat says small businesses struggling in the current economic climate may want to take advantage of a clause which allows them to write off debts that can not be recovered, such as unpaid bills from customers.
A bad debt deduction can be claimed where a taxpayer writes off a debt as unrecoverable, provided they have included the amount as income in the current year or a previous year.
“It is recommended that the taxpayer make reasonable attempts to recover the debt and if it is deemed to be bad, the taxpayer should resolve to write it off prior to 30 June, ” he says.
“In the current economic climate, we’re finding small business having more difficulty recovering debts.
“So it’s a good tax-planning opportunity to write these off as bad during the year, ensuring the business gets the tax deduction sooner rather than in a subsequent tax year.”
Mr Beat warns the ATO is targetting businesses that operate in the cash economy, including cleaners, cafes and restaurants, building trades and hair, beauty and nail specialists.
It uses data matching and benchmarking to identify businesses that file unusual returns, compared to their peers.
“The ATO is also cracking down on businesses with outstanding income tax returns and activity statements, using the threat of an audit to get businesses up-to-date with their compliance.”
Mr Beat says small business has lost some popular benefits after some recent tax changes.
Businesses with an annual turnover under $2 million are now subject to a reduction in thresholds for instant asset write-offs and the accelerated depreciation rate for motor vehicles.
Since the beginning of this year, immediate deductions can only be claimed on work equipment, such as computers, worth $1000 or less.
Assets costing more than this amount must be depreciated over several years.
Last year, the threshold for deductions on work equipment was $6500.
The accelerated depreciation rule for the deductible threshold for work cars has also been removed.
This means small business owners can no longer claim an immediate deduction for the first $5000 spent on the vehicle.
Mr Beat says the changes mean it will now take businesses longer to recoup their expenditure.
Another blow to small business was the abolition last year of the company loss carry-back rules.
These rules had allowed companies that made a tax loss for a year the option of getting a refund for all or part of any income tax paid in either of the two previous income years.
This provided a cashflow boost when companies needed it most.
© The West Australian
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