Small businesses are Australia's largest employers, generating over 5 million jobs. According to the Australian Tax Office (ATO), there are around four million small businesses in the country, representing about 87 percent of all business taxes paid.
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Australian Small Business Tax Guide
What Is Considered A Small Business?
From a tax perspective, a business is generally classified as a small business when the annual turnover is below $10,000,000 and not linked with another business. In terms of Capital Gains Tax (CGT) concessions, a small business is one with an aggregated turnover under $2,000,000.
According to the law, businesses must calculate turnover from the aggregated amounts. This refers to the annual turnover (gross income excluding goods and services tax) of all affiliated or connected businesses.
Understanding Taxes for Small Businesses
Small businesses are vital to the Australian economy and this is demonstrated by the government’s various support packages.
Temporary Full Expensing* Support and Temporary Tax Depreciation Incentives
The government introduced COVID-19 relief packages to allow businesses to invest their taxes in new capital assets.
A tax break called Temporary Full Expensing (TFE) was introduced in October 2020, allowing businesses to fully deduct eligible capital assets from their bottom line for the year, rather than allowing the cost to depreciate over several years.
As a business owner, you must keep in mind that this applies to assets first used or installed ready for use for tax purposes between 7.30 pm AEDT on 6 of October 2020 and 30 of June 2023.
Though there are caveats, TFE is a particularly useful tool for small businesses.
*Temporary full expensing ended on 30 June 2023.
You can deduct the cost of the following capital items:
- Technology (e.g security equipment, EFTPOS systems, laptops and computers);
- Office furniture;
- Solar;
- Fittings, fixtures, plant, tools, and equipment;
- Motor vehicles bikes for delivery, fieldwork, etc. However, this excludes vehicles exceeding $59,136 in the 2020-21 income year.
Only businesses with an aggregated annual turnover below $5 billion are eligible for these tax deductions.
Additionally, if your global aggregated turnover is over $5 billion but less than $5 billion in income in Australia, you are eligible to claim the tax break, provided you have spent over $100,000,000 between the financial years of 2016-17 to 2018-19.
For example, if you claim a new computer as a business expense but it is for business and personal use, you need to deduct the cost as a percentage. If the purchase was $2,500 and you use it for work 50 percent of the time, you can only claim $1,250 for business use.
Tax on Trading Stock
There is a simplified set of trading stock rules if your stock did not experience more than a $5,000 change in value over the financial year.
Tax on Prepaid Expenses
Small businesses can gain immediate tax deductions for a variety of prepaid expenses. For example, if you make a payment to cover an expense that extends into a new financial year (memberships, rents, or insurance premiums), you can claim it in the previous financial year.
Goods & Services Tax
Goods & Services Tax (GST) is a tax of 10 percent on most goods and services in Australia. If your small business is registered for GST you will have to collect this extra money from your customer and then pay that collected money to the ATO.
As a small business, you will need to register for GST if:
- Your business has a GST turnover of $75,000 or more;
- You are a non-profit organisation and have a GST turnover of $150,000 or more;
- Your small business provides taxi or limousine travel (this includes riding services such as Uber, Didi, or OLA);
- You want to claim fuel tax credits for your business.
As a small business, you may also be able to access some GST concessions as long as your business has an aggregated turnover of less than $10,000,000. Some of these concessions include:
- Accounting for GST and claiming GST credits within a tax period when you have been paid by a supplier, instead of accounting for GST once the invoice is received;
- Paying GST on quarterly instalments;
- Claiming full GST credit on purchases for private purposes; and
- Accounting for your private use purchases by making a single adjustment by the end of your income year.
Capital Gains Tax Help
There are several CGT concessions for businesses earning below $2 million annually or whose net CGT assets are below $6 million.
15-Year Exemption
For taxpayers over 55 who are retiring and disposing of CGT assets that they have owned for at least 15 years.
CGT Rollover
A gain arising from the disposal of a CGT asset can be deferred if a replacement is acquired within two years. This gain can be deferred until the replacement is disposed of.
Retirement Exemption
A taxpayer can apply CGT asset proceeds using the retirement exemption. The lifetime limit is $500,000.
CGT proceeds are what you receive, or are entitled to receive from a CGT event such as selling an asset.
50 percent Active Asset Reduction
You can discount 50 percent of a CGT asset, but only where rules apply.
Maintain Separate Accounts for your Small Business
If you are a small business owner, keep separate accounts for your business and personal expenses. There are many small business tax write-off options, but deductions can be difficult to claim if you mix your records between your personal expenses and your business expenses.
Keeping clear records about your business expenses will help you ensure you have all the required information when the time comes to lodge your tax return.
The Golden Rules of Record-Keeping
The key to tax time in Australia is record-keeping. According to the ATO, a variety of records should be maintained for five years. These may be stored either electronically or on paper but must be easy to access if the ATO requests to view them. It is important to note that these records must be kept in English or easily converted to English.
Record-keeping can include:
- Credit card and bank statements;
- Expense invoices and sales receipts;
- Vehicle records;
- Asset purchases;
- A list of creditors and debtors;
- Employee records, including contracts, wages, tax declarations, and superannuation contributions.
Tax Deductions for Small Businesses
As a small business, you can claim tax deductions for most costs associated with running your business. However, you need to be careful not to inflate your deductions to reduce your taxes. Doing so runs a high risk of capturing the ATO's attention and putting your business through an audit.
You can claim some work-related deductions such as:
- Advertising and sponsorship costs;
- Unpaid debt that previously fell under assessable income and has since been written off;
- Cost of borrowing capital/money;
- Business travel;
- Car expenses – keeping a logbook for a minimum of 12 weeks or claim 72 cents per kilometre up to 5,000 km;
- Fringe benefits;
- Working from home expenses;
- Insurance;
- Equipment and tools; replacements, repairs, and maintenance;
- Tax management expenses;
- Superannuation contributions, salary, and wages; and
- Phone expenses.
QuickBooks Can Help You To Save Time
QuickBooks Tax Software can provide you with extensive record-keeping, access to the relevant tax forms, and make filing simple to maximise your tax refund. QuickBooks Tax Software has the ATO benchmarks that can help you determine if your business is in line with all the ATO industry benchmarks. This will make sure that you claim all of the deductions that you deserve at the end of the financial year.
With QuickBooks Tax, you will also be able to:
- Snap and store digital copies of your receipts
- Securely store your receipts on the cloud
- Seamlessly connect your bank account to track your expenses
- Automatically categorise all of your business expenses
If you want to make tax time less taxing, sign up for a 30-day free trial here.
While every care has been taken to ensure the accuracy of the information presented as at 12 April 2024, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.
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