Avoid these small business tax errors

Unwanted attention and penalties from the ATO can jeopardise your small business.

Protect your business by avoiding these common small business tax errors.

Not using an accountant
Tax laws frequently change, and compliance requirements can be time-consuming and demanding. A registered tax agent will streamline your financial processes, provide advice on maximising your finances and keep you compliant.

Inaccurate tax returns
Small businesses that do not declare their income and deductions accurately will attract the ATO’s attention and financial penalties. All foreign income, capital gains tax, business sales and bank interest must be declared. You must also have legitimate evidence supporting your tax deduction claims.

Poor record keeping
Businesses that fail to keep accurate records will struggle to remain compliant. It is vital to keep:

• Cash, online, EFTPOS, bank statements, credit and debit card transactions
• Records showing when you use business purchases for private purposes to provide evidence for tax deduction claims

Incorrect superannuation payments
The ATO will sanction employers that fail to pay their employees’ superannuation correctly and on time. Make your mandatory quarterly payments are paid at the correct rate of 9.5 per cent of your employee’s pay. The cash-flow benefits of delaying super payments and missing deadlines are not worth the financial and criminal punishments incurred by frequent breaches.

Getting to know the ATO Business Portal

The ATO has introduced the Business Portal to allow small business owners to manage their tax affairs online at their convenience.

Connect your ABN to your myGov account or a compatible AUSkey so you can access the business portal. The portal is accessible 24 hours a day, seven days a week.

The portal can be used for the following services:

• Registering for GST or PAYG withholding
• Lodging, revising or viewing activity statements
• Requesting refunds or transfers between accounts
• Updating your business details
• Tracking the progress of refunds or transfer requests
• Communicating with us through a secure mailbox

Refer to the ATO for direct links that will step you through how to use these services successfully. If you still have trouble with technology it may be worth consulting a registered tax agent to help you fulfil the ATO’s compliance requirements.

ATO update: Tax deduction rules on travel to rental properties

The ATO has enforced strict guidelines on tax deductions for rental property owner’s travel expenses.

As a rental property owner you are not able to claim deductions for travel expenses relating to inspecting, maintaining or collecting rent. If you have already claimed a tax deduction for the cost of travel to and from your property in your 2018 return, you will need to request an amendment. The law change came into effect on 1 July 2017 and affects tax returns from 2017-18 onwards.

Exclusions
You may claim these travel expenses on your tax return if you are carrying on a rental property business or are an excluded entity.

An excluded entity is a:

• Corporate tax entity
• Superannuation plan that is not an SMSF
• Public unit trust
• Managed investment trust
• A unit trust or a partnership, all of the members of which are entities of a type listed above

ATO updates Taxpayer’s Charter

The ATO has updated the Taxpayer’s Charter which prioritises a relationship with the public built on mutual trust, courtesy and respect in all interactions.

Your rights regarding review of ATO decisions are clearly outlined by the Charter if you feel you have been mistreated. The Charter has also committed the ATO to use easy to understand language, so their information is accessible to the public.

Some of the changes include:

• Simplified information about what to expect if your business goes through a review and audit process
• More details on the ATO’s digital interactions with small businesses
• Moving away from complex language to make things easier to understand
• Including a one-page overview of your rights and obligations

Refer to the ATO to review the updated Taxpayer’s Charter for yourself.

ATO provisions for mental health

Small business owners suffering from mental health issues can seek the ATO’s help in meeting their taxation and super commitments.

If you are going through tough times take advantage of ATO services that will help keep your finances in check.

Get in contact with the ATO
Get in touch with the ATO as soon as you realise your mental health is impacting your ability to keep track of your tax. An ATO official can assess your circumstances, advise you on your options and help come up with a solution. The ATO offers an after-hours web chat and an after-hours call back service to get you the help you need. If you wish to talk over the phone, book in a time by completing the ATO’s online form. You may also have a person speak on your behalf provided you have authorised them as a nominated representative and verified their identity.

Support options
Once you have contacted the ATO, there are several options you can choose from to make it easier to stay up to date at tax time:

• Tailored payment plans
• Lodgement and payment deferral
• Requesting priority processing of your tax return refund
• Registering for personalised business assistance

Record keeping for small businesses

Businesses that fail to keep accurate records may struggle to remain compliant at tax time and incur financial penalties from the ATO.

Follow the ATO’s record keeping guidelines to stay organised.

Basic organisation tips:

• Keep records electronically (if possible)
• Keep evidence of all transactions
• Take photos of paper receipts to avoid faded records
• Keep all business records including income, expenses and bank records- you generally need to keep them for five years
• Keep your business records separate from your personal records

Financial tips:

• Make sure business records include cash, online, EFTPOS, bank statements, credit and debit card transactions
• Records should be kept of sales and other business income and business expenses which can be claimed as a deduction
• Keep records showing when you use business purchases for private purposes, which will help you work out the business portion you can claim as a deduction
• Use the ATO record keeping evaluation tool to review your record-keeping practices from time to time and see if you’re still on the right track

Tax implications of a business restructure

Tax exemptions may apply to small businesses going through a restructure provided they meet certain criteria.

Typically when a business is sold, you would have to pay income tax due to transferring assets. However, when a business is restructuring, the ownership of assets remains unchanged, and there is instead a rollover. This allows you to transfer assets as a part of the restructure without having to pay income tax on that transfer.

Your business may be eligible for the small business restructure rollover provided that:

• The change is a genuine restructure as opposed to an artificial or inappropriately tax-driven scheme
• There is no change to ultimate economic ownership in the sense that the economic owners of an asset are not changed or transferred, including if there is more than one owner of that asset

The commissioner’s remedial power has repealed laws that incurred tax consequences on depreciating assets during a business restructure. When transferring depreciating assets, like cars during a business restructure, the commissioner’s remedial power will automatically apply, and there is nothing different you need to do to qualify for this tax exemption.

When can the ATO issue a default assessment for overdue lodgements

A default assessment is an assessment of taxable income for overdue tax returns or the net amount or assessable amount-for late activity statements. Although the ATO’s preferred approach is to work with taxpayers to help them meet their lodgement obligations, a default assessment will be issued if this collaborative approach fails.

Penalty
The administrative penalty of 75% of the tax-related liability will be applied for each default assessment issued by the ATO. The penalty increases by 20% for taxpayers who have a pattern of non-compliance and the ATO may also apply for another penalty for failing to lodge on time.

Assessment notice warnings
A warning letter will be sent by the ATO including the details of the default assessment and the date the overdue obligation needs to be lodged by to avoid a default assessment. If you do not receive notice of your default assessment, it will be if there is a risk of:

• Flight
• Dilution of assets
• Movement of funds outside Australia

What you should do if you receive a warning letter
If you receive a warning letter, ensure all overdue obligations are lodged by the date advised in the warning letter. If you are a tax agent, notify your client, immediately, remove the client from your client list if you no longer represent the taxpayer and provide new contact details of the client to the ATO if you possess them.

ATO reminder: fuel tax credit rates have increased

Fuel tax credit rates have increased on 1 August. The ATO reminds you to use the new rates to calculate claims on your next business activity statement (BAS).

How to simplify fuel tax credit claims
If you claim less than $10,000 in fuel tax credits each year, you can use the ATO’s simplified methods to keep records and calculate your claims. Keep in mind the following tips:

• Keep accurate business records to help you claim all fuel tax credits you are entitled to
• Use the ATO tax fuel credit calculator to work out your claim
• Registered tax agents and BAS agents can help you with your tax

Simplified record keeping strategies
Use the following records to substantiate claims of less than $10,000 per year:

• Contractor statements can be used where an amount for fuel used in performing services is deducted from the amount payable for the services
• Financial institution statements (business or personal credit/debit accounts)- where only the dollar amount is displayed on the statement
• Point-of-sale docket- where the docket either does not itemise the quantity of fuel dispensed or the quality is illegible
• Fuel supplier statement of invoice- where only the dollar amount is displayed on the statement

ATO announces $20,000 instant asset write-off

The ATO has extended the $20,000 threshold to 30 June 2019.

If you buy an asset and it costs less than $20,000, you may write off the business portion in your tax return.

To be eligible to use the simplified depreciation rules and claim an immediate deduction for the business portion of each asset costing less than $20,000, you must:

• Have a business turnover less than $10 million (increased $2 million on 1 July 2016)
• The asset was first used or installed ready for use in the income year you are claiming it in.

If your asset costs more than $20,000, you are not eligible for immediate deduction. They will continue to be deducted over time using the general small business pool. You can write off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $20,000 at the end of an income year.

The $20,000 threshold applies from 12 May 2015 to 30 June 2019 and reduces to $1,000 on 1 July 2019. Remember, registered tax agents and BAS agents can help you with your tax.