IN THIS ISSUE
- What’s new for small business
- What business income do I need to declare
- What can I claim for my business
- What concessions can small business take advantage of
- How does my business compare to other businesses
- What’s on the ATO’s radar
- Paying building and construction contractors
- Superannuation for self employed
What’s new for small business?
Several new tax time-related changes have happened since last year that may affect you. Here are a few of them to be aware of.
- Lower company tax rate changes
From 1 July 2017, companies that are base rate entities will apply the 27.5% corporate tax rate.
A company is a base rate entity for 2017-18 if it has an aggregated turnover of less than $25 million and is carrying on a business for all or part of the income year.
The company tax rate will remain at 30% for other companies that are not base rate entities.
- A company may be a base rate entity to access the lower company tax rate and also be a small business entity to access the small business concessions.
- The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies, in line with the company tax rate.
- $20,000 instant asset write-off threshold extended
The $20,000 instant asset write-off threshold has been extended until 30 June 2018. This means that if you bought an asset before 30 June and it cost less than $20,000, you can write off the business portion in your 2018 tax return.
If you are a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased:
- from 1 July 2016 to 30 June 2018, and your turnover is less than $10 million and the asset was first used or installed ready for use in the income year you are claiming it in;
- from 7.30pm on 12 May 2015 to 30 June 2016, and your turnover is less than $2 million.
This deduction is used for each asset that costs less than $20,000, whether new or second-hand.
- Assets that cost $20,000 or more can’t be immediately deducted. They will continue to be deducted over time using the general small business pool.
- You write off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $20,000 at the end of an income year.
In the latest Federal Budget, there was a proposal to extend the $20,000 instant asset write-off threshold to 30 June 2019. This change is not law yet.
- Single touch payroll
Single touch payroll (STP) is a reporting change for employers. It started on 1 July 2018 for employers with 20 or more employees.
You will report payments such as salaries and wages, pay as you go (PAYG) withholding and superannuation information from your payroll solution each time you pay your employees.
You can do this through your existing payroll software (such as accounting software) as long as it is updated to offer STP reporting. Payroll software providers are updating their products now. Talk to your provider to find out how and when your product will be ready
- If you have 20 or more employees you will need to report through STP from 1 July 2018. The first year will be a transition period and penalties may not apply.
- If you have 19 or less employees, you will need to report through STP from 1 July 2019, subject to legislation being passed in parliament.
- Sale of low value goods
If your small business is registered for GST and imports low value goods for business use in Australia, you may not need to pay GST. You simply need to tell your overseas supplier that you are registered for GST, and provide them with your ABN.
If you are not registered for GST, GST can apply to these purchases. ■
When thinking about business income, start by including all of your gross earnings received through the ordinary course of your business. This includes any cash, EFTPOS, credit or debit card, and online sales.
There may be other sources of business income you need to declare, depending on your circumstances.
Some common examples include:
- net capital gains made when disposing of business assets
- rental income from property owned by your business
- any assessable government industry payments such as fuel tax credits
- foreign income from overseas business activities (if you’re an Australian resident)
- distributions to your business from partnerships and trusts.
Note! If you are running a business and are paid mainly for your personal efforts, skills or expertise, you may be earning personal services income (PSI).
What can I claim for my business at tax time?
You can claim most expenses you incur in running your business. While different businesses will have different costs, here are common expenses:
- Operating expenses: Most businesses have everyday operating expenses, including costs of stationery, trading stock, advertising, bank fees and insurance. There are also operating expenses when your business is online such as registration, web hosting and licensing fees.
- Business premises costs: You can claim business premises costs such as electricity, phone, water, rental or lease. If you run your business at your home or your business is based from home, you can claim the business portion of occupancy expenses and running expenses, like mortgage and electricity.
- Travel for business: Do you or your employees travel for business? You can claim business travel expenses such as bus, plane, Uber or taxi trips. If you have a vehicle for your business, you can claim motor vehicle expenses associated with running and maintaining the vehicle such as petrol, rego and insurance.
- Salaries and wages: If you’re an employer, you can claim the costs of employing people such as salaries and wages, and super contributions you make on their behalf.
4 golden rules for claiming work-related deductions
For all your business expenses, keep these four golden rules in mind:
- You must have spent the money;
- The expenditure must not have been reimbursed to you either directly or indirectly;
- The expense must be directly related to earning your income; and
- You must have some sort of record to prove that the expense was incurred (which can be produced if asked).
There are a range of tax concessions that your small business might be eligible for. Here are a few you should consider for your 2018 tax return.
$20,000 instant asset write-off
If you bought and installed business assets by 30 June, you may be able to write them off in your 2018 tax return.
Tip! You need to pool depreciating assets that cost $20,000 or more in a small business asset pool. Your tax adviser will have more information on how to do this.
You can claim a deduction this year if you have prepaid an expense that ends in the 2019 financial year – eg the rent for your business premises or an insurance policy.
Prepaid expenditure incurred by a small business entity is immediately deductible under the 12-month rule if:
- the eligible service period for the expenditure is 12 months or less
- the period ends no later than the last day of the income year following the year in which the expenditure was incurred.
- The 12-month rule applies to both deductible business expenditure and deductible non-business expenditure incurred by a small business entity that chooses to use this concession.
- If a prepayment does not meet the 12-month rule, you cannot claim an immediate deduction. Small business entities must apportion the deduction over the eligible service period or 10 years, whichever is less.
Simplified trading stock rules
This concession allows you to estimate the value of your trading stock at the end of the financial year to report in your tax return.
Eligible small businesses can use these simplified rules if there is a difference of $5,000 or less between:
- the value of your stock on hand at the start of the income year; and
- a reasonable estimate of the value of your stock on hand at the end of that year.
If you estimate that the difference between your opening and closing trading stock is $5,000 or less, then under the simplified rules, you don’t need to do a stocktake. Instead, you can include the same amount for your opening and closing stock in this year’s tax return.
Small business income tax offset
The small business income tax offset (also known as the unincorporated small business tax discount) can reduce the tax you pay by up to $1,000 each year.
You can get an offset of up to $1,000 if you’re a sole trader or have a share of net small business income from a partnership or trust.
The offset, which is worked out on the proportion of tax payable on your business income, is:
- 8% for the 2016-17 income year onwards;
- 5% for the 2015-16 income year.
The offset increases to:
- 10% in 2024-25;
- 13% in 2025-26;
- 16% in 2026-27.
Deductions for start-ups
Deduct the full cost of certain start-up costs for your new business, including professional advice in your tax return.
The range of deductible start-up costs includes professional, legal and accounting advice and government fees and charges.
Accelerated depreciation for primary producers
Primary producers can:
- immediately deduct the costs of fencing and water facilities
- deduct the cost of fodder storage assets over three years.
Primary producers who are small businesses can also use the simplified depreciation rules including instant asset write-off.
Note! The Government has proposed changes to allow primary producers to immediately deduct costs for fodder storage assets. This change is not yet law.
As a small business, you may be eligible for super concessions. These include:
- Superannuation clearing house: The Small Business Superannuation Clearing House helps you pay super guarantee contributions for all your employees in a single electronic payment. If you have 19 or fewer employees or a turnover under $10 million you can access this service.
- Contributions of small business CGT concession amounts to your super fund: You may be able to contribute amounts from the CGT 15-year asset exemption and retirement exemption to your super fund without affecting your non-concessional contributions limits. The turnover threshold for this concession is $2 million as it relates to CGT concessions (this threshold has not changed). ■
Small business benchmarks are a guide to help you compare your business’ performance against similar businesses in the same industry.
The easiest and quickest way to see how your business compares to competitors is by using the business performance check tool.
Tip! You can find the business performance check tool by downloading the ATO app from Google Play, the Windows Phone Store or the Apple App Store. The personal information you enter isn’t recorded and will only be used for completing the tool.
Outside the benchmark?
Your benchmark might be above or below the range for your business turnover in your industry. There could be a number of reasons why this has happened, including:
- you are only starting up or winding down your business
- higher costs or lower selling prices than your competitors
- incorrect entries on your tax return, for example salary and wages to directors or associates.
Note! It doesn’t necessarily mean you have done anything wrong if your business is significantly outside the key benchmark range for your industry. However, it does indicate something is unusual and may prompt the ATO to contact you for further information. ■
The ATO is paying close attention to a few expenses this year.
Clothing and laundry claims
The ATO is closely examining claims for work-related clothing and laundry expenses this year.
You can legitimately claim work-related clothing and laundry if you were required to wear either a uniform that is unique and distinct to your employer, protective or occupation specific clothing.
Tip! The $150 limit is there to reduce the record-keeping burden and is not an automatic entitlement for everyone.
The ATO’s technology and access to data is improving every year – be careful about what you claim, and always be ready to substantiate your claims!
Shares and capital gains
The ATO is also paying close attention to taxpayers who have sold or transferred shares and the amount they are reporting as capital gains. Share registry data is automatically sent to the ATO so the ATO’s systems will automatically flag an omission when the tax return is lodged.
Claims for work-related car expenses
The ATO is concerned about taxpayers making mistakes or deliberately lodging false claims in relation to work-related car expenses this tax time.
This year, the ATO will be particularly focused on people claiming things they’re not entitled to. For example, claiming things like home to work travel or other private trips; making claims for trips that they didn’t do or claiming expenses that their employer has already paid for or reimbursed.
- The ATO uses analytics to identify unusual claims being made by taxpayers by comparing them to their peers – those who are in similar occupations, earning similar amounts of income.
- The analytics are also used to identify claim patterns. For example, the ATO were able to identify that over 800,000 people claimed exactly 5,000 kilometres under the cents per kilometre method last year.
Unusual behaviours and characteristics
Broadly, the following behaviours and characteristics may attract the ATO’s attention:
- tax or economic performance is not comparable to similar businesses
- low transparency of your tax affairs
- large, one-off or unusual transactions, including the transfer or shifting of wealth
- aggressive tax planning
- tax outcomes inconsistent with the intent of the tax law
- choosing not to comply or regularly taking controversial interpretations of the law, without engaging with the ATO
- lifestyle not supported by after-tax income
- accessing business assets for tax-free private use
- poor governance and risk-management systems. ■
Did you need to lodge a taxable payments annual report this year?
If your main business activity is in the building and construction industry and you paid contractors for building and construction services in the 2017-18 financial year, your report was due by 28 August 2018.
You can still lodge your report:
- online if you have compatible software
- through your tax or BAS agent
- by mailing the ATO the completed form.
By reporting the payments you’ve made, you’re helping to increase fairness within your industry.
Lodge overdue reports!
Do you have any overdue reports from prior years? Lodge them as soon as possible.
If you’re no longer in the building and construction industry or you didn’t pay contractors for building and construction services in the 2017-18 financial year, submit the online taxable payments annual report – not required to lodge form. ■
If you’re a sole trader or in a partnership, you generally don’t have to make superannuation guarantee (SG) payments for yourself. However, you may want to make personal contributions to super as a way of saving for your retirement.
From 1 July 2017, regardless of whether you’re self-employed or not, most people will be able to claim a full deduction for contributions they make to their super until they turn 75 years old. Those aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction. Keep in mind that contributions you make may attract extra tax if they exceed the contributions limit for that year.
Tip! You may also be eligible for the super co-contribution payment. This helps eligible low-to-middle income earners save for their retirement. If you’re eligible and you make personal super contributions, the government will match your contribution up to certain limits, unless you have claimed your contribution as a tax deduction.
Casual employees may be entitled to super
Employing casual workers provides businesses with an increased level of flexibility. However, it’s important to remember that casual employees may be entitled to super.
Here are the basics:
- You may need to pay super guarantee (SG) regardless of whether your employee is full-time, part-time or casual.
- If you pay your employee $450 or more (before tax) in a calendar month, you have to pay SG on top of their wages.
- If your employee is under 18 years old, they must also work for more than 30 hours per week to qualify for SG.
Super guarantee is currently calculated at 9.5% of a casual employee’s ordinary time earnings. This includes their wage plus any casual or shift loadings for ordinary hours of work. It also includes commissions and some allowances, but it doesn’t include overtime payments.
Tip! Speak to your tax adviser to work out if your casual workers are eligible for super and whether your workers are employees or contractors. ■