The Australian Taxation Office (ATO) has issued several guidelines to help small-business owners with their EOFY tax preparations, an initiative that could be particularly timely in light of the story we covered yesterday about the challenges of filing many small-business owners face.
The tax time toolkit is designed for both small businesses and their tax professionals and includes guides on reporting different expenses and deductions, as well as deductions and other actions that are considered red flags by the ATO, including:
- Deductions that are private in nature and not related to business income, as well as over-claiming of business expenses (especially for taxpayers running a home-based business).
- Omission of business income, for example income from the sharing economy or new business ventures.
- Record keeping – including insufficient or non-existent records that are needed to substantiate claims.
“We know most small businesses do their best to meet their tax obligations and get it right,” ATO Assistant Commissioner Andrew Watson said. “The majority lodge their tax returns through a registered tax professional, but we know that some (particularly sole traders) like to ‘DIY’. So, if you’re going to give it a go yourself, we recommend you take a look at our guides, to help you nail it.“
Watson also encouraged small-business owners to discuss ATO debts with their registered tax professional or with the ATO and set up a payment plan if needed.
Watson is also also recommending that small businesses deciding to close their operations temporarily or permanently at this time of year check out ATO’s ‘Pausing or permanently closing your business’ to guide the business into the steps needed to be done for the ATO to finalise their account and issue any refunds that might be owed.
He is also reminding small businesses to include all income, including earnings from ‘side hustles’, regardless of the form of income received such as cash, cash, coupons, EFTPOS, online, credit or debit card transactions, and income from platforms such as PayPal, WeChat or Alipay.
Small businesses (including sole traders) in the building and construction, courier, cleaning, information technology, road freight, security, and investigation or surveillance industries nned to be mindful that their payment information is provided to the ATO through the taxable payments reporting system. For sole traders, this system will be available as pre-fill in their tax returns, whether they are using a registered tax agent or doing it themselves,
The ATO also reminded businesses that most government payments or financial support received as a result of COVID-19 should be included as taxable income, though others are exempt and should not be included. The ATO website has detailed information on which support or payment programs are taxable or otherwise.
The ATO are keen to stress business taxpayers that while sole traders, partnerships, trusts, and companies have different deduction claim guidelines, there are three golden rules for what the ATO accepts as valid business deductions:
- The expense must have been for the business, not for private use.
- If the expense is for a mix of business and private use, taxpayer can only claim the portion that is used for their business.
- Taxpayer must have records to prove it.
“It may be tempting to over-claim a deduction for your business, but it’s not worth the risk,” Watson warned. “Make sure you are eligible, only claim the business portion of expenses, and also keep complete and accurate records so you have appropriate evidence for any deductions you are planning to claim.
“If you have a registered tax agent…just make sure you are on the books with your tax agent before 31 October, so we know you are not planning to lodge your own return,” Watson concluded.