Tax Tips for SMEs – FY 2019/20

With the end of the financial year fast approaching, it’s time to start thinking about those tax returns! This financial year has been engulfed by bushfires and infected by COVID-19. A strong understanding of tax can put out concerns and alleviate worries.

If gasps and spilt coffee echo in your meetings, check out these tax tips for SMEs…

This year it’s especially important to avoid putting off tax affairs. Working from home, reduced income, furloughed employees, Centrelink, JobKeeper or JobSeeker – the list goes on. A list that, in most cases, complicates things.

The earlier you get in, the sooner you’ll get any refunds you may be entitled to. Cash injections are crucial in the next few months. Note that as millions of Australians have been affected in some way by loss of income, the ATO has a mammoth task at hand. Added complications like access to super, government cash loans, JobKeeper and asset write-off will no doubt result in delays.

Most people have experienced some kind of change to their income – unfortunately, often a decline. Businesses need to make sure they’ve met their PAYG withholding tax obligations to claim a deduction in salaries and income.

Sole traders need to include JobKeeper as accessible income. Every financial year, CEOs and business owners make tough decisions about how much they’re going to pay themselves and their employees. This year it may be extra important for you.

“Thank god for the internet” is something a lot of people around the world are saying these days. If you’re one of the many Australians WFH, or who have worked from home, it may significantly affect your tax. In response, the ATO has unveiled a tax shortcut applicable from 1 March to 30June.

In a nutshell, the ‘shortcut’ allows taxpayers to deduct 80 cents per hour during the time they’ve WFH – assuming they’re incurring expenses. Additionally, you won’t have to have a dedicated area of your home for work like in the past. For example, a graphic designer working from the kitchen table is acceptable.

Bear in mind, you won’t be able to claim travel expenses from your bedroom to the kitchen table!

The $150K instant asset-write threshold has been extended until 31 December 2020. Basically, eligible SMEs can claim immediate deductions up to $150,000 for new or secondhand equipment. The amount you can write off depends on when the asset was purchased. It must be used or installed in the income year you’re claiming for.

Make sure the write-off is based on your business needs and is inline with your business plan. For example, a tractor may have helped a farm expand and harvest more crops or a van helped a business make more deliveries.

Note that if your business is a partnership, there’s no double-dipping option.

Carrying forward your concessional superannuation cap might be an ace up your sleeve.

Providing your marginal tax rate outside of super is higher that the 15% contribution tax, a super contribution could be an advantage. This year, if your income has been choked by COVID-19, you’re able to carry forward your unused cap for five years.

In other words, if you contribute $5000 to super this year, you could, hypothetically, put in $45,000 next year rather than $25,000. Note that previous years, the concessional cap has been $25,000.

Understand your cash flow: 2020 has not been easy. Now that it’s tax time, make sure you have a solid understanding of your finances which likely have been affected somehow.

Spend wisely: With all the deals and savings, it’s easy to get carried away. Running out of money is a nightmare scenario so make sure to consider everything.

Maximise depreciation: While being open and honest to your tax agent and the ATO is a must, this year’s assistance packages from the Federal Government can really help. Do some research on how your business could benefit.

Getting on top of your tax commitments early is extra important this year. New features of the Federal Budget and the increased need for refunds are putting the ATO and taxpayers to the test.