Kothes small business tax tips

At Kothes Accounting Group we realise running a small business can be overwhelming, particularly when it comes to tax planning and keeping up with tax changes. We’ve put together a few simple small business tax tips for you, and if you would like further information, please don’t hesitate to contact your Kothes chartered accountant.

Be aware of what’s changed

The Federal Government announced its Budget in May this year, and it is always good to be aware of how the changes affect you and your tax and financial planning. Some of the changes include:

• From 1 July 2016, companies with an annual turnover of less than $10m will benefit from a reduction in the company tax rate to 27.5 per cent. Unincorporated small businesses will also enjoy the benefit of an increase in the small business tax discount from 5 per cent to 8 per cent, with the turnover threshold increased from $2m to $5m.
• From 1 July 2017, the government will remove the current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement. Specifically, the government will remove the requirement that an individual aged 65 to 74 must meet the ‘work test’ before making voluntary or non-concessional contributions to superannuation.

Don’t delay your lodgement because you are worried about what you need to pay

The Australian Tax Office is getting stricter with people who fail to have their lodgements up to date. The penalties are also getting harsher. Some small businesses delay lodgement because they are not organised, or don’t think it will matter, or because they are worried about not being able to pay. You are better off to lodge on time and then work out a payment arrangement if you are unable to pay.

Make sure how you’re managing your business suits your circumstances

There are numerous ways you can minimise your tax but every business is different and every situation is different. Before you make big decisions about your individual and business circumstances, make sure it suits your circumstance. This is why it is really important to talk to your accountant. Australia has one of the most complex taxation systems in the world, and you can’t be expected to keep on top of everything, so seeking professional advice can save you time, headaches and most importantly, money.

Be mindful of whose name you put your assets in

Make sure your personal assets are protected. Your business entity shouldn’t hold investments not related to the businesses. There may be tax advantages for assets that earn investment income to be held in the name of the spouse or partner with the lowest marginal tax rate.

Understand your deductions

Be aware of what legitimate deductions you can claim through your business. These may include your mobile phone, laptop, iPad and motor vehicle. You need to be careful about claiming entertainment expenses such as meals and alcohol, as the ATO has strict legislative requirements to be fulfilled for claims. If you are unsure, check with your accountant about what you can and can’t claim.

Know how to claim your business vehicle

There are two ways to claim your motor vehicle expenses – keeping a log book or a diary. With your log book, you need to keep it for 12 consecutive weeks in any five year period, as long as the pattern of usage doesn’t change. If it does change, you need to start a new log book. If you are claiming 5000 kilometres or less, you only need to keep a diary record of your work trips. The diary needs to record date of travel, purpose of travel and total kilometres.

Claiming mobile phone, internet and home phone expenses

If you use your own phones or internet for work purposes, you may be able to claim a deduction if you paid for these costs and have records to support your claims. If you use your phone or internet for both work and private use, you will need to work out the percentage that reasonably relates to your work use. To work this out, keep records for a 4-week representative period in each income year to claim a deduction of more than $50. These records may include diary entries, including electronic records, and bills. Evidence that your employer expects you to work at home or make some work-related calls will also help you demonstrate you are entitled to a deduction. The ATO website has some good information about this if you google “ATO claiming mobile phone”.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own chartered accountant, as every individual circumstance is different.