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5 top tax tips for small businesses

Ben Johnston
4 June 2021

While small and medium business owners have benefited from government initiatives during the COVID pandemic, and with FY21 less than a month away, they need to not only focus on their tax planning but also be mindful of the increased scrutiny and data matching programs from the Australian Tax Office according to business and tax expert Ben Johnston, from Johnston Advisory. 

Mr Johnston explains, “With tax time looming, it’s imperative that small business owners take time out of their busy schedules to plan for any year end actions that they may need to take to ultimately reduce their tax payable. 

“While Governments are doing all they can to encourage business growth, SMEs including contractors alike need to review their options carefully.”

One big change that impacts small business is the lowering of the tax rate to 25% from 1 July 2021. 

Mr Johnston warns: “While this looks good for companies, many small business owners that pay dividends to themselves will have to pay higher tax personally as they will incur top up tax. This is the difference between their marginal rate and the small business tax rate. This will catch people out both in this year and also moving forward.”

Mr Johnston details his 5 best tips for small businesses leading into tax time: 

  1. Ensure all superannuation for you and your staff is paid before June 30. You are only able to claim superannuation as a deduction once it has been paid, therefore if you want to claim it in the 2021 financial year, you need to pay in the coming weeks. 
  2. Write-off any bad debts that you have in your receivables list. If you are certain that you will not be paid and it’s uneconomical to pursue, write off the bad debt prior to or on June 30 to ensure you claim the deduction in the 2021 year. 
  3. Make use of the Instant Asset Write-off. If you need any vehicles, machinery, office equipment or tools, purchase these before June 30 so you claim the total cost of the asset in the 2021 financial year. 
  4. Prepay expenses such as insurance and business subscriptions to bring forward the deduction and be able to claim these in the 2021 tax return. 
  5. Plan ahead for next financial year. Before the end of this financial year, it is a great time to review your business structure and possibly take advantage of income splitting opportunities you may be missing out on. It’s also a great time to review your budgets and plan out expenditure so you can manage your business cash flow and tax obligations for the next financial year. 

The ATO has announced an audit initiative and data matching programs that are looking into small business and the black economy alike. 

“If you think they are polar opposites in terms of ATO focus you need to think again. In fact, if you own a car valued at over $10,000 in your business name the ATO has you in their sights and it’s something that will change the game when it comes to big brothers’ approach and the sophisticated way in which the government is undertaking audits,” Mr Johnston said.

Tips to assist in avoiding ATO scrutiny and dealing with your motor vehicle FBT obligations: 

  • Always declare all income earned by your business including cash sales. 
  • Have your staff keep a logbook to record business travel in work vehicles. 
  • Prepare a workplace policy regarding private use of company vehicles. 
  • Register your business for Fringe Benefits Tax if you own a company vehicle or provide employee and/or their associates a work vehicle. 
  • Lodge & pay your FBT obligations on time with the ATO. 
  • Consider paying your employees a car allowance rather than providing them with a company owned vehicle. 
  • Ensure all tax invoices/receipts are kept on file for vehicle related costs. 
  • Consider applying the Employee Contributions Method to car benefits whereby employees con-tribute towards the private use of their vehicle. This is a great way to reduce your businesses FBT exposure.
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