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The Australian Taxation Office (ATO) has released a set of guidelines and advance warning about what it will be focussing on in regard to small-business tax returns.
One of the major points of interest for the ATO this tax year will be small-business deductions that are private in nature and not related to business income. It will also be looking for those that overclaim business expenses (especially for taxpayers running a home-based business), and the omission of business income, for example income from the sharing economy or new business ventures.
Record-keeping will also be under the microscope and the ATO said it will be taking note of those small businesses that have insufficient or non-existent records that are needed to substantiate claims.
To help small businesses ensure they meet all their tax requirements, the ATO has issued a small-business tax time toolkit that includes information on:
ATO Assistant Commissioner Andrew Watson said the ATO knows most small businesses do their best to meet their tax obligations and get it right.
“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,” he said.
“We know it’s been a tough couple of years for many small business owners, and we understand your tax obligations may not be at the top of your list. So, if you need a hand, I encourage you to contact your registered tax professional or the ATO.
“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. No matter what your situation is, it’s never too late to ask for help. Tax time is also a great time to discuss ATO debts with your registered tax professional or the ATO – and set up a payment plan if you need one.”
Mr Watson reminded small businesses to include all income, including earnings from “side hustles”.
“Almost half of the 1.9 million sole traders also have non-business income, like salary and wages or income from investments, so make sure to double check you’ve included it all before you lodge. Don’t fall into the trap of leaving out non-business income thinking we won’t notice,” he said.
Small businesses should include all income in their income tax return, including cash, coupons, EFTPOS, online, credit or debit card transactions, and income from platforms such as PayPal, WeChat or Alipay.
The ATO also reminded small businesses (including sole traders) in the building and construction, courier, cleaning, information technology, road freight, security, and investigation or surveillance industries that payment information is provided to the ATO through the taxable payments reporting system.
“For sole traders, this will be available as pre-fill in your tax returns, whether you are using a registered tax agent or doing it yourself. Just remember, it’s important to cross-check your own records against the payment information pre-filled by the ATO before lodging, to ensure it is complete and accurate,” Mr Watson said.
The ATO has also reminded businesses that most government payments or financial support received as a result of COVID-19 need to be included as taxable income, whereas some others are exempt and should not be included. The ATO has detailed information listing how all support payments should be treated on its website.
On deductions, Mr Watson reminded businesses to only claim what they are entitled to, and that their business structure affects their entitlements and obligations. The way that sole traders, partnerships, trusts, and companies claim deductions is often different.
“Don’t forget, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use,” Mr Watson said.
If your home has been your main place of business (for example, if you relocated your base of operation from an office to your home because of COVID-19), you can claim deductions for the portion of expenses that relate to running your business.
“It may be tempting to over-claim a deduction for your business, but it’s not worth the risk. 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,” Mr Watson said.
Mr Watson reminded small businesses that lodge their own tax returns that they must lodge by 31 October.
“But if you have a registered tax agent, you will have more time to prepare and lodge. 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,” Mr Watson said.