16 Mar 3 Quick Tax Tips for Businesses that could save you thousands this year
When was the last time you received a call from your accountant offering you some tax advice to help your business? As a trusted advisor, it’s my firm belief that clients should be hearing from their accountant regularly, not just at tax time, because quite often it’s too late then! So here are 3 quick tax tips for my current and prospective clients that may save you a lot of money and headaches this financial year.
Please be advised that this advice is general in nature and as every client has their own unique circumstances, you should speak to myself or your trusted advisor before relying on any of the information presented below.
- The $20,000 immediate asset write off for small businesses: This is a significant tax concession available to small businesses up until 30 June 2019, with the potential to save businesses thousands in tax this financial year, however not many businesses even know what it is or that it’s actually been in operation since 12 May 2015.
How does it work? Are you considering purchasing any business assets, including cars or plant and equipment like computers, office furniture, tools or machinery this financial year? If it isn’t a priority for you at the moment, you may well reconsider after reading on. Businesses can claim an immediate tax deduction for the business portion of each asset they purchase costing $20,000 or less, including GST. This includes second hand assets. So rather than having to depreciate the asset over a number of years and getting only a small tax deduction every year as a result, you can effectively claim the full cost of the purchase as a deduction this financial year and for many businesses this could save them thousands in tax this year. As an accountant I think it’s important that all clients are aware of this now as it may well affect your capital budgeting decisions. There are a few hurdles to ensure you’re eligible and I certainly don’t advocate spending thousands to buy assets you don’t need, just to save some tax. However, if you have the cashflow and your business could benefit from purchasing a new asset then now might be the best time to do it. A draft bill has also been introduced in the House of Representatives which sets to increase the amount to $25,000 and extend the cut-off date to 30 June 2020, so watch this space. This is a great incentive to support businesses.
- Keep up to date! Don’t get lumped with unnecessary fines and penalties:
The ATO collected over $2.7 billion in revenue last financial year in fines and penalties and interest. Typical fines that are imposed on businesses include penalties for late lodgement of Business Activity Statements, Tax Returns, FBT Returns, PAYG Withholding Annual Reports and Taxable Payments Annual Reports. Most of these fines start at $210 (one penalty unit), however, they continue to increase significantly every 28 days lodgements remain outstanding. Factor in interest also payable on the amount outstanding at the current rate of 8.94% and the cost of not keeping on top of your tax obligations can quickly spiral for businesses. In many instances, fines and penalties and interest may be able to be remitted where there have been extraneous circumstances affecting your ability to lodge on time. However, this usually involves liaising with your accountant and them writing in a formal remission request on your behalf and many accountants will charge you their time to do this, so there are still potentially costs involved for businesses. The best action that businesses can take is to be well aware of all their lodgement dates (your accountant should also keep you informed of these) and contact the ATO as soon as you anticipate you will be late lodging to negotiate an extension. The worst thing business owners can do is to let their tax affairs continue to get further behind as these costs can escalate very quickly.
- Pay your employees superannuation on time!
There are a number of reason’s why this is really important, not least of which because it’s your legal responsibility to your employees. However, in order to receive a tax deduction for paying superannuation you’ve accrued for your employees throughout the year, you need to have physically paid it. With businesses obliged to pay the super guarantee at 9.5% of ordinary time earnings (in the majority of cases), superannuation can quickly equate to a substantial tax deduction for businesses. For example, for companies paying tax at the reduced rate of 27.5% of their profits per year who have accrued (and paid) $10,000 in superannuation, this could save them $2,750 in tax if paid on time and before 30 June. Again, there are a number of other factors that need to be looked at on a case by case basis but this is one potential outcome. I often see sole-traders in particular who fail to pay their own superannuation. I strongly encourage these clients to make sure they are contributing to their super fund. Not only is it contributing towards your retirement, but it also has some fantastic tax benefits including the potential to claim these contributions (up to certain limits) as a tax deduction in the year you pay them. Business owners should also be aware that the ATO imposes severe penalties for not paying your employees superannuation on time including interest and administration fees. Importantly, where the business is a company a ‘director penalty notice’ may be issued, which makes the director/s of the company personally liable for the unpaid super amount. So along with the potential tax savings, there are many reasons why paying superannuation on time is really important.
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