Tax options available to COVID-19-affected small businesses

For businesses in the midst of struggles as a result of the COVID-19 pandemic, the Australian Taxation Office (ATO) is offering a range of options, including claiming a deduction for losses.

“We know some small-business owners are under incredible amounts of stress and facing uncertainty like never before,” ATO Assistant Commissioner Andrew Watson said. “We understand your tax obligations may not be at the top of your list of things to do. So, if you need some extra help with your tax and super affairs, I urge you to contact your registered tax professional or the ATO. We’re here to help.

“If you’re feeling overwhelmed or getting behind with your tax, let us know as early as possible so we can work with you to find a solution,” Watson added. “No matter what your situation is, it’s never too late to ask for help.”

The ATO anticipates a number of businesses that will file losses, possibly for the first time, in 2019–20 and 2020–21 as a result of the pandemic. Watson stresses that businesses that find themselves in this situation may be able to claim a deduction for the loss.

“It’s crucial that you keep proper records to ensure you can claim the deduction you’re entitled to,” Watson said.

Sole traders and individual partners in a partnership who meet certain conditions can offset current year losses against other assessable income (such as salary or investment income) in the same income year. Otherwise, they can defer the loss or carry it forward and offset it to a future year when the business next makes a profit. Meanwhile, corporations that made a tax loss in a current year can generally carry forward that loss for as long as they want and claim a deduction for their business in a future year.

“You’ll need to keep records for five years for most transactions. However, if you fully deduct a tax loss in a single income year, you only need to keep records for four years from that income year,” Watson said.

The ATO pointed out though that there are some deductions that can’t be used to create or increase a tax loss, such as donations or gifts and personal super contributions.

Watson also acknowledged that some businesses may need to close their doors, either temporarily or permanently, particularly in Victoria. Businesses that will close temporarily are encouraged to try keeping up with tax and super obligations and to reach out to the ATO or contact their registered tax professional if they need additional time or support.

“If you have to close your business permanently as a result of COVID19 or for any other reason, there are a few things you’ll need to do, like lodge any outstanding activity statements and instalment notices, make GST adjustments on your final activity statement and lodge final tax returns – so we can finalise your account and issue any refunds that might be owed to you,” Watson said. “After you’ve finalised your tax affairs, don’t forget to cancel your ABN, and GST registration if you have one.

“You’ll also need to keep your business records for at least five years after the end of the financial year you sell or close your business in.”

The ATO also acknowledged that businesses may be finding it difficult to estimate income for the purposes of pay in instalments.

“To assist businesses affected by COVID-19, we will not apply penalties or interest for excessive variations when you make your best attempt to estimate your end of year tax,” Watson said.

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