Two-thirds of small business don’t fully understand a business tax return

The research, commissioned by Xero and conducted by Lonergan Research, surveyed more than 500 small-business owners and managers, and more than 1,000 consumers, and the results revealed that almost a third of people who run a business (30 per cent) taught themselves how to lodge a company tax return online and a further 12 per cent never learnt how to lodge a tax return.

It also showed that of those business leaders surveyed, tax offsets, asset depreciation, and profit and loss statements were the most confusing components of filing their taxes.

Positively, the research also showed that the majority (76 per cent) of Australian small businesses are engaging with an accountant or tax adviser at EOFY, highlighting the vital role they play in keeping businesses compliant at tax time, and 27 per cent learnt how to file their business return with the help of a tax adviser.

Joseph Lyons, managing director, Australia and Asia, Xero said the research highlights a concerning but unsurprising education gap for people who run a business at tax time.

“Most Australians who start their own business do so because of passion or opportunity, not because of a love of financial and business administration,” he said.

“That’s all the more reason to make sure small business owners and sole traders make use of the right people, like accountants and bookkeepers, and cloud tools to stay compliant and on track.

“These advisors can guide small business owners through the complexity of the EOFY process and set them up for success. They’re the secret sauce to being confident heading into EOFY.”

Other findings from the research showed that 42 per cent of small-business owners don’t fully understand tax offsets while a third (33 per cent) don’t understand asset depreciation. Another 26 per cent don’t fully understand profit/loss statements and 21 per cent don’t fully understand overseas transactions.

Additionally, a quarter (27 per cent) double-check what they are eligible to claim online, while only a fifth (19 per cent) will check in with an adviser, and only a third (34 per cent) of small businesses understand all parts of a business tax return.

Xero’s research also revealed Australian consumers will be conservative with any tax refunds they receive this year, with two out of five (40 per cent) respondents planning to save, and 23 per cent of respondents intending to put any refunds towards everyday bills.

For many, this could be a reflection of rising cost-of-living pressures inducing conservative money management – Xero’s latest Small Business Insights data noted sales are already slowing in industries that rely on discretionary spending.

The research also noted that similarly to small-business leaders, a third (33 per cent) of Australians surveyed have taught themselves to do their personal tax return through online research. Of those who will lodge a return this year, the majority (84 per cent) of those surveyed say they will be claiming deductions. However, a third (33 per cent) aren’t confident about what they can claim so they will search for answers online, while nearly a sixth (15 per cent) plan to check in with an adviser.

“Tax season can be stressful so preparation is key, whether you run a business or are filing your personal tax return. While it can take time to set up good processes and say goodbye to the shoebox of receipts, it’s a worthy investment that will make the whole experience smoother for years to come,” concluded Mr Lyons.