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Tax Tips for small businesses 2022

Common Tax Deductions for Small Business

Are you claiming all the business tax deductions that you are entitled to?

There are many expenses common to most small business, and there are other expenses that are specific to the nature of the goods or services that your business provides.

• Operating expenses include accounting, administration, advertising and marketing, office premises, office running expenses, trading stock, legal fees, insurance and vehicle expenses.
• Employment expenses include salary and wages, fringe benefits, superannuation and training costs.
• Other operating expenses may include things specific to your business, for example point of sale systems, freight, professional membership fees, professional education, protective equipment, tools or specialised software.
• Capital expenses include machinery and equipment, vehicles, furniture and computers. Depreciation for these assets may also be deductible if the expense was not written off immediately.
• Repairs and maintenance to assets and business premises.

Expenses must relate to the running of the business and providing the goods or services that your business offers.

Some common expenses that are not deductible are fines and penalties, provisions for employee leave, donations to entities not registered as deductible gift recipients and entertainment.

There may be some expenses you want to check such as private usage of business vehicles, prepaid expenses, bad debts, loss of stock and borrowing expenses. 

What’s on the ATO Radar for 2022?

This year the ATO will be taking a closer look at record keeping, work related expenses, rental property income and deductions and cryptocurrency transactions.

• Keep records for all business transactions (income and expenses), activity statements and financial reports for at least five years.
• Keep all records relating to employees, contractors and payroll for at least five years.
• If your business is a company, keep all records for at least five years, including director meeting minutes.

Other Common Tax Return Issues

Work-related travel expenses

Travel fares, accommodation, meals. The travel should be directly related to income producing activities and you need records to verify the travel claims.

Motor vehicle expenses

Keep records for fuel, repairs and servicing, finance arrangements, insurance and registration. Keep a logbook to record private travel.

Fringe benefits

Have you captured all benefits provided to employees? Vehicle and entertainment benefits are usually scrutinised. This year you’ll need records of any extra benefits provided to employees because of COVID-19.

Superannuation

Have you paid the superannuation guarantee on time to employees’ super funds? The ATO will examine your Single Touch Payroll records including superannuation payments.

Current temporary tax depreciation incentives

There are currently three temporary tax depreciation incentives available to eligible businesses:

• Temporary full expensing - for assets you start to hold, and first use (or have installed ready for use) for a taxable purpose, from 7.30pm (AEDT) on 6 October 2020 to 30 June 2023.
• Increased instant asset write-off - if the asset was purchased by 31 December 2020, and first used or installed ready for use before 30 June 2021. The threshold remains at $150,000.
• Backing business investment.

Talk to your accountants about what applies for your business.

Get Your Business Records Ready for Your Tax Return 2022

Organising your documents now will mean you can get your tax return completed earlier and access any refunds due or start planning for tax payments.

Getting your business records up to date and accurate will allow us to work with you proactively to plan for the coming year, which will continue to be unusual (and possibly difficult) for many.

It will also be one less thing to do when your normal business activity resumes later in the year!

What Records do you Need to Have Ready for your Tax Agent?

• Have you bought or sold assets? If so, you need full details of acquisitions and disposals.
• Have you taken out a new loan or other finance? You must have details of the finance arrangements and statements of monies owing at 30 June.
• Check that any bonds or deposits paid or received have been allocated correctly.
• Have you prepaid for insurance or other large business expenses that need to be apportioned to the following financial year? Make note of the portion applicable to the current financial year.
• Do you carry stock? If so, you need to perform a full stocktake at 30 June (unless you qualify for the simplified trading stock rules).
• List any doubtful or bad debts to be written off.
• Review your debtors and creditors (accounts payable and receivable). Is the list current and correct?
• Do you have loans with related entities? Reconcile the loans to and from each entity to ensure the same value is reported in the accounts of both entities.
• Ensure that all payments to company directors have been correctly captured. Talk to us now if you want to make director payments before 30 June.
• Provide records of any government grants received for COVID-19 or natural disaster impacts on your business.
• Gather records of any COVID-19 related benefits that were provided to staff this financial year as there may be fringe benefits implications.
• If contact details of business owners and key personnel have changed let us know.

This year, there may also be new elements to discuss with your accountant if you have received grants, refunds, credits or deferrals of business expenses and liabilities.

Remember you need to keep all your business records for five years, so store everything securely and where possible electronically for safety and ease.