The Australian Tax Office (ATO) is getting serious about small business tax, with a recent push to minimise tax errors in reporting. As the owner of a trades-based business, its important to make sure your tax return is up-to-scratch. Here are six common mistakes and how to avoid them to make sure your business stays in the clear this financial year.
1. Incorrect income reporting
You must report all income your trades business has received throughout the financial year. This also includes incidental income such as interest you’ve received on your bank accounts. The same applies to cash payments. Failure to include these in your taxable income can result in serious penalties for tax fraud.
2. Failing to separate expenses
When preparing your tax return, it’s important to understand the difference between business costs and personal expenses. While you can deduct expenses that relate directly to your business operation from your taxable income, you can’t claim personal expenses. For example, if you use the same mobile phone for work and in your private life, you can only claim a portion of your phone bill.
3. Incorrectly claiming GST
Here’s where it can become a little confusing. You must be registered for GST to claim the GST on your business expenses as a tax deduction. If you are registered for GST, you can claim GST credits in your quarterly Business Activity Statements (BAS), not in your annual income tax return. When you list business expenses as deductions in your income tax return, you should subtract the GST you’ve already claimed in your BAS.
4. Keeping paper receipts
There’s no need to clutter your office with boxes full of paper receipts since physical receipts are not actually required to prove your business expenses. Transaction records in your credit card or bank statements are usually sufficient. If you did pay with cash, you can just upload your receipts to QuickBooks Online and you’ll have a digital copy available when tax time rolls around.
5. Incomplete BAS reports
If your trades business is registered for GST, you must lodge a quarterly BAS. This will also cover your pay-as-you-go (PAYG) instalments and withholding tax. It’s easy to get behind on lodging BAS statements as a busy tradie, but this is an essential part of your tax reporting responsibilities and will come with fines for late lodgement or payment.
6. Making late payments
According to the ATO, almost 30% of small businesses don’t pay their taxes on time, which can result in fines and other penalties. Construction accounting software like QuickBooks Online takes the stress out of tax reporting, and makes it easy to keep your tax records and payments on track.