The financial burden of keeping a business running during Covid-19 lockdown has been huge and now that we are opening back up there's no doubt that more expenses are coming your way from setting up your Covid-safe plan.
It’s safe to say that 2020 has been an unprecedented and challenging year, with bushfires, drought and COVID-19 making things incredibly difficult for people in small businesses.
Small businesses are a vital part of our economy, making up more than 99% of all Australian businesses and contributing $413 billion plus to the economy, as well as keeping many people employed.
With a number of grants and government stimulus packages in place, tax time is looking quite different for small business this year. Your tax return might just be the injection of cash your business needs right now. Let's have a look at what you can do to maximise your business tax return this year and make sure you are submitting all the deductions you are entitled to claim! To help you further we have added our Small Business Tax Checklist and our Tradie Tax Checklist download your copy at the end of this blog.
So let's get into it!
Key Dates you need to know:
25 November 2020 – Due date for September 2020 Quarter BAS (when lodged by a tax agent)
31 December 2020 – End of Quarter 2
21 January 2021 – Due date for payment of superannuation for December 2020 quarter
28 February 2021 – Due date for December Quarter BAS
Tax Rate Cut
Individual tax rates have been reduced recently but did you know company tax rates are also reducing. The full company tax rate is 30%, for Small Business Companies it’s 27.5% and for the 2020 -21 financial year it will drop to 26%. But wait there's more.... It drops even further, for the 2021 -2022 financial period it’s will be down to 25%.
Instant Asset Write-off
On the 9th June the ATO have announced it will extend the $150,000 instant asset write-off until 31 December 2020. This is provided they are first used or installed and ready for use between 12 March and 30 June 2020.
You should be making the most of this as it may jump back down to $1000 from 31 December 2020.
Here’s a quick breakdown of some items you could look to write off:
· Accounting software
· Office fit-outs
· Computers, laptops or tablets
· Cash registers and other point-of-sale (POS) devices
· Motor vehicles, such as cars, utes and vans
· Security systems
· Tools, plant and equipment
Debts
If you have been hit hard by COVID-19, the reality is you may have outstanding debtors that are slow to pay you can’t recover. Ensure you are communicating regularly with the debtor, ask them to begin making small payments towards the debt straight away. Towards the end of the financial year, determine if you think you will be able to recover the debt and consider writing off as a bad debt.
Payroll Review & STP
Now is the perfect time to review your payroll and check that your employees are being paid in accordance with their industry awards. Single touch payroll (STP) is compulsory for all business paying wages. Business owners can ultimately expect STP to facilitate a smoother and more streamlined EOFY. This is because digital systems have ensured that the entire process is now more efficient, accurate and straight forward.
With Xero it’s pretty easy, to finalise year end with STP within Xero:
Go to Payroll > Single Touch Payroll > Finalisation.
Once you’re there, simply click on the employee’s name to review their year-to-date summary. If you’re happy with the summary shown, select the checkbox to the left of the employee’s name and then click 'Finalisation' and submit to the ATO. If you come across any issues or need help please give me a call.
Here's a quick video for some extra help - Click Here
Reporting JobKeeper payments
JobKeeper payments are taxable and need to be included in tax returns.
If you’re a sole trader who has received JobKeeper payments, you need to include the payments as business income in your individual tax return.
If your business is a partnership, trust or company, and you received JobKeeper payments, you don’t need to include it separately as assessable income in your personal individual tax return. If your business is a partnership or trust, you will report JobKeeper payments as business income in your partnership or trust tax return. If your business is a company, you will report it as income in your company tax return.
Your employees won’t need to do anything different as the payments will be included as salary and wages, or an allowance, in the regular income statement, or payment summary, you provide as an employer.
Reporting Cash Flow Boost credits
You don’t pay tax on Cash Flow Boost credits, as they are non-assessable non-exempt income. How this credit is reported in your return or your financial statements is different depending on your business structure. Talk to a registered tax professional for more information and he's a link with information - Click Here
Claim, claim, claim!
If you have had to spend money on it to keep your business afloat, make sure you deduct it!
You can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income.
How to claim your business deductions depends on your business type:
Sole trader – claim the deductions in your individual tax return in the 'Business and professional items' schedule, using myTax or a registered tax agent.
Partnership – claim the deductions in your partnership tax return.
Trust – claim the deductions in your trust tax return.
Company – claim the deductions in your company tax return.
Some of the standout claims are:
COVID-19 protective gear for you, your staff, and your customers.
Self-education, for those who have been upskilling during lockdown.
New technology requirements for those working from at home.
New furniture depreciation (very handy for businesses who faced closure).
See this link for more information - ATO Business Tax Deductions
For more information about incorporating the COVID-19 financial packages into your FY19/20 tax return - Click Here
If you're thinking of getting creative with your return- DONT! The maximum penalty is $360,000 with some cases even resulting in jail time. It’s just not worth it to claim that boozy client lunch or personal Uber.
Working from home
If you have you been recently working at home due to the coronavirus, you may be entitled to claim tax deductions for expenses related to generating your income. Discuss this with your tax agent.
Reconciliation
It is important to fully reconcile all your bank accounts and ensure they match with the balances from your bank statements. Using a cloud based software makes this process easier as they will download the transactions from you bank accounts.
ATO Resources
The ATO has a range of information, tools, calculators and services available to help small businesses at tax time and all year round, find the here: Click Here
Speak to your accountant about any concerns you may have, it’s not a good idea to just assume everything will be ok as the ATO is looking closely at small business.
Download your Tax Checklists by clicking on the links below, then click download:
Feeling Overwhelmed?
You're not alone! If tax, BAS and reconciliation has you feeling overwhelmed and you just wish you could get some clarity on your financials and cash flow, but can’t afford a big bill?
Let me take away the overwhelm and worry your business accounts cause you, I can give you clarity and help set your future goals, so we can work towards them together!
No big bills, just a manageable monthly fee that includes quarterly BAS and business analysis, tax planning and end of year financials.
Let’s get planning for 2020 -2021, by improving your knowledge, productivity and growth!
