AS TAX time approaches, small business owners are looking for ways to legitimately reduce their tax burden.
AS TAX time approaches, small business owners are looking for ways to legitimately reduce their tax burden.
The Australian Society of CPAs has put together answers to the ten questions most commonly asked by small business at tax time.
1. Do I have to keep a record of absolutely everything?
These days it’s not so much a question of ‘if’ you get audited but rather ‘when’.
You must make sure your records are both adequate and complete to stand up to an audit review.
Check you have all the relevant documentation for your business such as bank statements, deposit books, cheque butts, cash books or accounting records such as your general ledger, trial balance, profit and loss statement and balance sheet for the full year.
2. Can I just make an estimate of my stock?
It is not sufficient to simply make an estimate of your stock or to take a guess.
You need to include a value in your accounts of stock in hand and work-in-progress at 30 June.
Closing stock can be valued at cost, replacement or market value or less if obsolete – but you have to document which method you use.
3. How can I afford to protect my business from the Year 2000 bug?
Many costs incurred to become Year 2000 compliant are fully tax deductible.
4. I’ve a couple of bad debts – can I claim them as a deduction?
To make sure you get the full deduction for bad debts ensure they are physically written off before 30 June.
To do this the debt must have been brought to account as assessable income and you must have given up all hope and, more importantly, all action for recovery.
It is a good idea to have a record-ed action, in the form of a minute, writing off the particular debt.
5. Will I be liable for capital gains tax?
Capital gains tax may apply to any profits made on the sale of assets purchased since 19 Septem-ber 1985 so assets purchased after that date must be fully documented for CGT purposes.
For capital losses, make sure you keep a record so they can be carried forward to offset against future capital gains.
You should also be aware there are some small business CGT roll-over relief and retirement exemptions you may be able to access.
6. How much substantiation do I need to provide for travel and vehicle costs?
Substantiation rules may apply to motor vehicles and travel expenses so log books and odometer readings should be kept as well as other records itemising travel expenses. Remember, the devil is in the detail.
7. Why should I review assets?
It’s easy to carry assets on your books that have no real value, are obsolete or have been scrapped.
The only way to get a write-off deduction for them is to review your asset register – the list you should be keeping of all plant, equipment, furniture, fittings and any other assets including all items bought, sold and disposed during the year and take the necessary action before 30 June.
8. Does fringe benefits tax apply to my business?
Fringe benefits tax may apply to entertainment expenses (from bus-iness lunches to tickets for sporting events), company motor vehicles, some directors’ loans or a host of other benefits received by employees and directors, so details of all such benefits should be recorded.
9. Do I have to worry about superannuation payments for casual staff too?
This is an easy area to slip up on, particularly if you have a high turnover of employees, or employ a lot of casual or seasonal workers.
You should review all your superannuation payments before 30 June to ensure all your employees throughout the year have been covered and that payment amounts have been adequate.
Remember to adjust these if you have given employees wage increases or bonuses.
10. Is there anything that I may have forgotten?
Commonly overlooked items are interest earned on bank accounts, cash deposits and income earned from other sources as well as a schedule of non-business deposits.
All these should be declared as must ‘other expenses’ such as cash payments, including the nature of the payment and how the funds were provided.
You should also be aware of the recent private company loan rules – see your CPA for full details.
There is no substitute for good business advice and planning.
Your CPA can help with much more than filling in your tax return.
The Australian Society of CPAs has put together answers to the ten questions most commonly asked by small business at tax time.
1. Do I have to keep a record of absolutely everything?
These days it’s not so much a question of ‘if’ you get audited but rather ‘when’.
You must make sure your records are both adequate and complete to stand up to an audit review.
Check you have all the relevant documentation for your business such as bank statements, deposit books, cheque butts, cash books or accounting records such as your general ledger, trial balance, profit and loss statement and balance sheet for the full year.
2. Can I just make an estimate of my stock?
It is not sufficient to simply make an estimate of your stock or to take a guess.
You need to include a value in your accounts of stock in hand and work-in-progress at 30 June.
Closing stock can be valued at cost, replacement or market value or less if obsolete – but you have to document which method you use.
3. How can I afford to protect my business from the Year 2000 bug?
Many costs incurred to become Year 2000 compliant are fully tax deductible.
4. I’ve a couple of bad debts – can I claim them as a deduction?
To make sure you get the full deduction for bad debts ensure they are physically written off before 30 June.
To do this the debt must have been brought to account as assessable income and you must have given up all hope and, more importantly, all action for recovery.
It is a good idea to have a record-ed action, in the form of a minute, writing off the particular debt.
5. Will I be liable for capital gains tax?
Capital gains tax may apply to any profits made on the sale of assets purchased since 19 Septem-ber 1985 so assets purchased after that date must be fully documented for CGT purposes.
For capital losses, make sure you keep a record so they can be carried forward to offset against future capital gains.
You should also be aware there are some small business CGT roll-over relief and retirement exemptions you may be able to access.
6. How much substantiation do I need to provide for travel and vehicle costs?
Substantiation rules may apply to motor vehicles and travel expenses so log books and odometer readings should be kept as well as other records itemising travel expenses. Remember, the devil is in the detail.
7. Why should I review assets?
It’s easy to carry assets on your books that have no real value, are obsolete or have been scrapped.
The only way to get a write-off deduction for them is to review your asset register – the list you should be keeping of all plant, equipment, furniture, fittings and any other assets including all items bought, sold and disposed during the year and take the necessary action before 30 June.
8. Does fringe benefits tax apply to my business?
Fringe benefits tax may apply to entertainment expenses (from bus-iness lunches to tickets for sporting events), company motor vehicles, some directors’ loans or a host of other benefits received by employees and directors, so details of all such benefits should be recorded.
9. Do I have to worry about superannuation payments for casual staff too?
This is an easy area to slip up on, particularly if you have a high turnover of employees, or employ a lot of casual or seasonal workers.
You should review all your superannuation payments before 30 June to ensure all your employees throughout the year have been covered and that payment amounts have been adequate.
Remember to adjust these if you have given employees wage increases or bonuses.
10. Is there anything that I may have forgotten?
Commonly overlooked items are interest earned on bank accounts, cash deposits and income earned from other sources as well as a schedule of non-business deposits.
All these should be declared as must ‘other expenses’ such as cash payments, including the nature of the payment and how the funds were provided.
You should also be aware of the recent private company loan rules – see your CPA for full details.
There is no substitute for good business advice and planning.
Your CPA can help with much more than filling in your tax return.
