The end of financial year (EOFY) is an important, yet often, stressful time for small businesses.
Many business owners struggle to maintain the records they require to satisfy their tax obligations such as; records for deductions, bookkeeping, tax returns and planning for the following financial year. With adequate planning and preparation, this process can be easy to manage and less daunting each financial year. To support small businesses, the National Retail Association (NRA) have developed a guide that will aid small business owners to tick off their requirements as they go, giving them peace of mind they are achieving the obligations set out by the Australian Tax Office (ATO).Download the Printable Guide
What do I need to do?
Complete your ATO checklist
1. Check your record keeping and other annual tasks:
- Compile a profit and loss statement to summarise income and expenses.
- Conduct a stocktake.
- Compile summaries of your record of debtors and creditors.
- Collate records of asset purchases or expenditure on improvements (to calculate depreciation expense claims and capital gains tax CGT).
- Complete and lodge income tax returns.
- Lodge yearly reports or returns for:
- Pay as you go (PAYG) withholding.
- Fringe benefits tax (FBT).
- Goods and services tax (GST).
- The taxable payments reporting system.
- Ensure your superannuation requirements are all met.
- Make digital copies of any paper records and back them up.
2. Compile a list and records to claim for tax deductions and concessions
You can claim deductions for expenses that are directly related to the earning of your income. You must have records to prove the expenses you claim as business deductions. For example, you may be able to claim deductions if your business:
- has set up a website;
- has motor vehicle expenses;
- uses diesel fuel;
- operates at home;
- has travel expenses; or
- uses machinery, tools or computers.
3. Check your tax agent is registered
Don’t fall for tax scams, and ensure your tax agent is registered with the Tax Practitioners Board (TPB) by searching the TPB register or looking for the registered tax practitioner symbol on their website or collateral.
4. Check for changes in the law & regulations
Always double check if there have been any changes such as updates in tax law and deductions or concessions for small businesses to ensure you are 100% compliant.
5. Check for tax refund scams
Every year around tax time, there is an increase in scams that target small businesses such as:
- Tax refund scams – the scammer claims you’ve overpaid your taxes and are eligible for a refund. To get this refund, they claim that you need to pay a fee.
- Tax owed scams – the scammer claims you’ve underpaid your tax and request the owing amount immediately by asking for your credit card details or asking for a bank transfer.
Protect your business from cyber threats and only liaise directly with the ATO.
Review your business & plan ahead
6. Create a cash flow forecast
Creating a cash flow forecast can help you manage any potential shortfalls, look at your business holistically and ensure you have sufficient finances to pay your staff and ongoing suppliers.
7. Review your business and marketing plans
Review the past 12 months and set yourself up for the year ahead by realigning your goals and priorities, reassessing your strategies, researching emerging market trends, discovering new opportunities, and looking for ways to optimise your expenses for maximum results.
8. Review your business structure
Once you have a better idea of what goals you’d like to hit in the next financial year, it is a good time to see if you need to change your business structure to accommodate for growth and expansion. Compliance and taxation regulations also differ depending on your business structure. Read more here to know the differences between a sole trader and a company.
9. Check your insurance policies
If your circumstances have changed or are likely to change, you may need to rethink your current level of cover.
10. Review rates of pay
Minimum wages and modern award wages typically increase from 1 July each year. Ensure you are compliant with the most current wage rates by conducting a thorough review.
11. Backup and secure your files
This is often an afterthought for small business owners, but is an extremely important step to ensuring your business information is never lost, stolen or compromised. Ensure your files such as registrations, financial information and customer data are all stored in a secure off-site location.Download our online guide
Why are these steps important?
Under the Australian tax law, taxpayers who own a business are required to keep records of all financial transactions entered into. This includes documents that explain how your income and expenses were determined. So, whenever you’ve claimed a deduction, declared income, made an estimate or calculation, documented details must be kept. All taxation records must be kept for a minimum of five years; penalties and interest may apply if you fail to do so.
What deductions can I claim & how can I calculate it?
A common recommendation for small business owners is to make sure you’re claiming all the appropriate deductions you can. This includes things that are related to your income, such as rent, utilities or repairs for your business, or professional, legal and accounting advice. However, it is important to note you cannot claim a deduction simply because you think you are ‘entitled’ to it. You must have spent the money, and it must have been related to your business income. The ATO requires justification as to how the claim was calculated in forms of usage records and invoices before they can qualify your claim.
Find out more about business tax deductions here.
What if I run by business from home? What deductions can I claim?
If you deem your home as your primary place of business, this should mean you are running your business from home and have a room exclusively or almost exclusively for business activities. The expenses you incur from running your business from home can only be claimed as deductions for the business part of the expense. You cannot claim deductions for private costs. For example, business phone calls can be claimed, whereas personal phone calls cannot, and you can claim a percentage of your rent or mortgage as a business expense, but not the whole amount.
To make it easier for people to claim deductions for ‘working from home’ expenses due to COVID-19, the ATO are accepting a temporary shortcut method for calculating home office expenses until 30 June 2021. This allows you to claim a rate of 80 cents per hour for all additional running expenses, including:
- electricity for lighting, cooling or heating and running electronic items used for work (for example, your computer), and gas heating expenses
- the decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internet costs
- computer consumables, such as printer ink and stationery
- the decline in value of a computer, laptop or similar device.
Find out more about claiming ‘working from home’ expenses here.
Can I claim super as a tax deduction?
Yes. You can claim a tax deduction for super payments you make for employees only if the super was done and paid for before 30 June, otherwise, you are not able to claim the deduction.
What online services can I use to manage my tax?
The ATO have a list of online services to help small businesses manage their tax and super.
- ATO online services – sole traders can access this on any device to lodge their tax return, manage activity statements, PAYG instalments and accounts, make payment arrangements and more.
- Online services for business – replacing the Business Portal, this new service allows you to prepare and lodge activity statements and annual reports, organise payment plans, manage accounts, and more, at a time that’s convenient to you.
- Business Portal – while you transition to Online services for business, the Business Portal will be available until it is decommissioned later in 2021.
For more information, visit the Australian Tax Office website, or call the ATO on 13 28 66.
*This information should not be substituted for legal or financial advice.