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The financial year is fast approaching its conclusion, and with that brings about everyone’s favourite time of the year – tax time.
In light of this, the Australian Taxation Office (ATO) has provided valuable tools and information to assist small businesses and their tax professionals as they navigate their way through the trickiness of tax time.
As part of the information provided by the ATO, it has flagged its key areas of focus for small-business tax returns for the 2021-22 financial year, which include:
- Deductions that are private in nature and not related to business income, as well as over-claiming of business expenses (especially for taxpayers running a home-based business)
- Omission of business income, for example income from the sharing economy or new business ventures
- Record keeping – including insufficient or non-existent records that are needed to substantiate claims
ATO assistant commissioner Andrew Watson said that it is paramount that small businesses include all income, including their earnings from “side hustles” this coming tax time.
“Almost half of the 1.9 million sole traders also have non-business income, like salary and wages or income from investments, so make sure to double check you’ve included it all before you lodge,” he said.
“Don’t fall into the trap of leaving out non-business income thinking we won’t notice.”
Income tax returns should include all income, including cash, coupons, EFTPOS, online, credit or debit card transactions, as well as any income from platforms such as PayPal and WeChat.
The government body also reminded small businesses in the building and construction, courier, cleaning, information technology, road freight, security, and investigation or surveillance industries that payment information is provided to the ATO through the taxable payments reporting system.
Mr Watson said: “This will be available as pre-fill in your tax returns, whether you are using a registered tax agent or doing it yourself. Just remember, it’s important to cross-check your own records against the payment information pre-filled by the ATO before lodging, to ensure it is complete and accurate.”
With regards to the issue of deductions, Mr Watson has warned businesses to only be claiming what they’re entitled to, re-enforcing the point that their business structure impacts their entitlements and obligations.
On deductions, there are three golden rules for what the ATO accepts as a valid business deduction:
- The expense must have been for your business, not for private use
- If the expense is for a mix of business and private use, you can only claim the portion that is used for your business
- You must have records to prove it
Moreover, if your home has been your primary place of business this past financial year, which, given the wide-reaching effects of COVID-19 lockdowns, is the likely case for many small-business owners, then the ATO has outlined that you can claim deductions for the portion of your expenses that relate to the running of your business.
“It may be tempting to over-claim a deduction for your business, but it’s not worth the risk,” Mr Watson said. “Make sure you are eligible, only claim the business portion of expenses, and also keep complete and accurate records so you have appropriate evidence for any deductions you are planning to claim.”
To help business owners, the ATO has released a small-business tax time toolkit, which contains guides on how to manage:
- Home-based business expenses
- Motor vehicle expenses
- Travel expenses
- Claiming deductions for the cost of digital expenses
- Using business money and assets for personal use
- Pausing or permanently closing your business
Key points within the toolkit include how to calculate and manage home-based business expenses, including stipulation into rates that can be used on claims on running expenses related to at-home business operations, as well as offering a distinction as to what can be deemed a “place of business” within your home.
It also outlines the parameters and guidelines for travel and motor vehicle expenses.
Mr Watson said the toolkit is aimed at assisting those small-business owners who are “DIY” when it comes to filing their taxes.
Small businesses must have lodged their own tax returns by 31 October.
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