Shape up: why small business owners need to talk tax now

Apr 28, 2021

Small business owners are heading towards one of their most confusing tax times ever, and are being urged to get organised and get advice before it’s too late.

COVID’s wild swings in business income, changing tax rates, government stimulus and new announcements in the delayed 2020 Budget are among the tax issues faced by Australia’s 2.3 million small businesses.

Waiting until the June rush puts both sole traders and small business employers under pressure and raises the risk of losing money or benefits unnecessarily, accounting specialists say.

Lielette Calleja, founder of cloud accounting bookkeepers All That Counts, says timing is vital.

“If you are a business owner who typically only sees their tax accountant once a year, your first order of business is to make an appointment to see them now, and not after 30 June,” she says.

GOOD ADVICE CRUCIAL

Calleja says small business owners wanting to maximise tax deductions this financial year should consider bringing forward expenses, paying superannuation and staff bonuses before June 30, and writing off bad debts and damaged or obsolete stock.

Chartered accountant and Mr Taxman founder Adrian Raftery says good accounting advice is “crucial” because some COVID stimulus payments – such as JobKeeper – were taxable but others – such as the cashflow boost – were tax exempt.

“A lot of people don’t realise they can claim back the tax they paid in previous years if they are running at a loss this year,” he says.

“And very few people know about temporary full expensing.” This started in October and allows business owners to immediately deduct the full amount of new depreciating assets, regardless of their cost.

However, business owners should not spend simply to chase tax deductions, Raftery says, because the current small business tax rate of 26 per cent gives them just 26c-in-the-dollar. “Why spend money when you only get a fraction back?” he says.

AVOID A SURPRISE

Intuit QuickBooks Australia’s head of advisor strategy, Meagan Wood, says federal and state governments’ quick COVID stimulus helped support small businesses but mean more care should be taken to avoid a surprise tax bill.

“As we head into tax season, these benefits that many small businesses may have accessed bring with them some additional complexities to navigate from a tax perspective,” she says.

“Our internal research shows us that there are three reasons why small and medium businesses often don’t connect to an advisor – they don’t think their business is big enough to warrant it, they don’t want to pay for ongoing access to an accountant or bookkeeper and they’re not sure where to find one.

“Looking ahead, small businesses with an advisor relationship are now three times more likely to feel positive about the upcoming end of financial year and tax preparation period, than those without.”

Wood says now is the perfect time to connect with an adviser, and there are online tools available to help.

Melissa Barry, director and owner of Hudson Barry Pilates, was hit hard by COVID and says business owners can’t move forward without an accurate understanding of their financial situation.

“Being able to lean on our accountant during this time has been extremely helpful,” she says.

“I try to focus on what I can control, and while JobKeeper coming to an end makes it challenging, I’m determined to survive and thrive.

“With the help of our accountant and up-to-date financials, we’re able to make decisions to ensure a secure future for our business and to continue to provide for our family and for the clients that rely on the value we bring.”

Author and chartered accountant Adrian Raftery says advice is crucial. Picture: Simon FoxAuthor and chartered accountant Adrian Raftery says advice is crucial. Picture: Simon Fox

TAX TACTICS

• Write off bad debts before June 30.

• Scrap obsolete stock and equipment.

• Lower tax by pumping up to $25,000 into super as a tax-deductible contribution.

• Defer income until after June 30 where possible.

• Bring forward expenses such as repairs and maintenance.

• Keep your accounting data up to date so you know what levers to pull.

• Consider purchasing new business assets for a 100 per cent write-off, but don’t spend purely for a tax deduction, as you only get back a portion of the expense.

Source: Mr Taxman, All That Counts

 

Original article published in The Australian here on 28 April 2021. 

comments-rhsLatest Comments

  • "Breakup and Come Back To Me Spell:-Have you lost your lover to another person and they are happy in the arms of another person but you still love them and want them back then you need to Breakup and..."

    By: HOW TO GET BACK YOUR EX at May 09, 2021 1:16PM

    Post: Marriage

  • "Old thread, but have a related question... If I have a "Foreign LLC" registered in the US and am trading Futures on US exchanges using a US FCM/broker (but am an Australian resident for tax..."

    By: CJ at Apr 06, 2021 6:46AM

    Post: Trading US futures in Australia

  • "Hi. I bought shares back in 2018.. And a few more since. I borrowed the money out of my home loan to do this. I still own the shares, but do not receive any dividends from them, although the value..."

    By: Harry at Mar 31, 2021 3:38AM

    Post: Borrowing to buy shares

  • "Hi Mr Taxman, this is a great forum, thanks. I am trading forex and commodities on an Asian platform. Whn I went to withdraw funds I was informed that the Australian Tax department requires me to pay..."

    By: Peter Andrew Sutherland at Mar 26, 2021 10:41PM

    Post: Foreign currency trading

  • "Im planning on hiring a Nanny to drive my child to my ex husband and back twice a fortnight adding up to approximately 6,000km a year. What will they be eligible to claim and what kinds of records..."

    By: Peta Granger at Feb 25, 2021 3:52AM

    Post: Claiming car expenses