The most important SME considerations before tax time

As we creep closer to the end of the financial year, thoughts begin to shift towards the end of financial year and our tax return lodgements. There are several things that small-business owners need to be aware of in 2021, especially if they received government stimulus payments.

It’s important to keep in mind that these are just a few of the things that business owners should be considering when preparing their business tax return.

JobSeeker should be included in your business tax return

JobSeeker is a taxable payment, so businesses need to ensure they include this income in their business tax return. For businesses who claimed for an Eligible Business Participant (someone related to the business who worked in the business), this amount is assessed at the business level – not necessarily at the level of the individual who was named.

If the Eligible Business Participant withdrew the money from the business, this will be dealt with as business drawings which can have varying impacts depending on the business structure.

Cashflow boost is not included in your business tax return

Cashflow boost isn’t a taxable payment, so make sure it’s not included in your business tax return. It’s considered income in your accounting software but is removed for tax purposes.

Impact of PAYG Instalments on your tax bill

For those businesses on Pay As You Go Instalments (pre-payment of their tax), the Australian Taxation Office (ATO) varied a lot of the PAYGI to nil over the 2021 financial year to help with cash flow during COVID-19.

Be mindful, as this may mean you end up with a larger tax bill as you may not have pre-paid tax for this financial year. Because of this, tax planning becomes more important than ever. You should be assessing your projected taxable income before 30 June, especially if you have had a good trading year. That way you can make decisions that could possibly reduce your tax bill for 2021.

Impact on small businesses of the new loss carry back offset scheme

For businesses that operate through an eligible company, the governmentintroduced the loss carry back tax offset. This provides a refundable tax offset that eligible corporate entities can claim after the end of their 2020/21 and 2021/22 income years in their 2020/21 and 2021/22 company tax returns.

Eligible entities get the offset by choosing to carry back losses to earlier years in which were income tax liabilities. This means the offset effectively represents the tax the eligible entity would save if it was able to deduct the loss in the earlier year using the loss year tax rate.

There is criteria that needs to be met, including having up-to-date lodgments, a franking accounting surplus and only claiming tax losses back once.

This offset is only available for entities who operate through companies, which means Trusts, Partnerships and Sole Traders cannot use this offset.

Consider whether the instant asset write-off will make a difference worthy of the investment

Instant asset write-offs allow businesses to claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed for use. There has been a lot of interest from business owners around the instant asset write-off this year, but it’s important that you do your research and talk with your tax accountant before you make a purchase to ensure if this option is right for you. In theory, the instant asset write-off is great but don’t spend money just to save tax because you won’t be saving a dollar in tax for every dollar you spend

My advice for business owners leading up to tax time

I strongly recommend business owners get advice before 30 June. This is a financial year like no other, and many businesses will be caught out. After 30 June, your tax advisors won’t be able to do anything to help minimise tax, so get that advice before the financial year finishes.

Michelle Maynard, Chartered Accountant and Partner, Carbon Group