Get more from your tax return (and avoid a call from the ATO)
We’ve collated the best tips from accountants and the ATO on how to prepare your tax return for maximum reward without fear of an audit.
Preparing your tax lodgement? With EOFY behind us, now’s the time to make sure you’re up to date with your tax affairs.
It’s not something to be left to the last minute, as this can cause pain for your tax agent, increases the risk of errors and missed deductions, and the mind also tends to become foggier as the months pass.
To make sure you’re doing the right thing by yourself, your advisors and your business, we’ve collated a list of tips to make sure you’re minimising your tax burden and avoiding unwanted scrutiny from the ATO.
Know your lodgement dates and plan ahead
It’s one of the more commonly misunderstood elements of tax planning for new business owners and individual taxpayers alike: when do you need to lodge by?
ATO assistant commissioner Karen Foat said that, while you can lodge your return now, you want to be absolutely certain you have all the correct information at hand.
“We know from previous years that the early birds who lodge in the first weeks of July are far more likely to make mistakes or submit incomplete data,” said Foat.
“These mistakes may slow down your return, or result in a debt owing to the ATO if we later need to correct the information.”
But when it comes to the actual deadlines for lodgement, chartered accountant, former accounting practice owner and now coach to accounting practices, Amanda Gascoigne said there’s no ‘one size fits all’.
“Normally, tax returns for individuals are going to be due on 31 October if they’re lodging by themselves, or if they lodge through a registered tax agent then they may have extended lodgement dates depending on their and their tax agents lodgement history with the ATO.
“For businesses, in addition to lodgement history it will also depend on their size; the majority of small businesses will have until 15 May 2020 to lodge their 2019 return.”
And keep in mind that if you’re a business owner running a company, trust or partnership, you’ll likely have multiple lodgements with multiple due dates. So check with your tax advisor to get it right.
Claim what you can, and no more
Work-related and general business expenses are areas in which both individual tax payers and business owners alike tend to either miss out on deductions, or accidentally claim on things they shouldn’t.
When it comes to work-related expenses, the ATO offers the following advice:
- You need to have spent the money yourself and not been reimbursed
- The claim must be directly related to your income
- You must have the records to support your claims
“Many people rely on advice from friends and co-workers on what is an acceptable claim, and the information may not always be accurate,” said Foat.
“This sees the ATO rejecting thousands of ineligible claims each year for things like gym memberships, travelling to and from work, conventional clothing and the private portion of phone and internet costs.”
When it comes to business expenses, Gascoigne recommends business owners get to know their substantiation rules.
“Misunderstanding substantiation and what businesses actually need to back up their claims is an area in which many business owners get caught out,” said Gascoigne.
Check out the ATO’s ‘Records you need to keep’ page for an overview of the types of documents you should hold onto to substantiate your claims.
Become a recordkeeping master
It’s no good understanding substantiation for tax deductions if you don’t do the due diligence in maintaining accurate records.
“Many business owners make the mistake in thinking that, because they’ve made a purchase on their business card with a supplier that the ATO will automatically view that as a business-related purchase without additional proof,” said Gascoigne.
“Fact is, people make mixed-use purchases all the time.
“You might go to Officeworks and purchase some office supplies as well as arts and crafts supplies for the kids, all on the one receipt.
“Fact is, you need to make sure you’re allocating what part of that purchase was for business purposes if you want to avoid raising eyebrows at the ATO.”
Luckily, this process is easier than ever with the introduction of MYOB’s Capture app, which allows MYOB Essentials users to take a photo of every receipt and have it uploaded directly to their accounting software, where you can then apportion which purchases were made for the business versus those made for yourself.
Don’t forget the cash
Another common issue for many small business owners is forgetting to record and declare cash income or claim on purchases made with cash.
It may seem like a small amount here and there, but many small cash incomings and outgoings can make a significant difference to your tax return, and the ATO will notice when things don’t quite match up.
“It’s very easy to forget about cash transactions,” said Gascoigne, “so I recommend having a dedicated business bank account. If you happen to use the wrong card or wrong bank account, simply transfer the money in or out within a few days of the transaction to make sure it’s being accounted for.
“It’s now even easier for the ATO to look at business bank accounts and even personal bank accounts to see if someone’s underdeclaring income and therefore creating a tax and GST liability.
“The ATO have sophisticated data matching programs that identify undisclosed income earnt from online selling sites such as eBay and Shopify and unregistered businesses advertising their goods and services via online social media platforms.
“In cases where the ATO believe an omission was deliberate as opposed to an oversight, hefty penalties may apply.”
Devils in detail
While we’ve already covered off the major issues business owners might face in getting their tax done right, but there are a whole host of others to consider.
For some of the other things you might want to pay close attention to, Gascoigne provides the following list:
- Claims on motor vehicles: “There’s a common misconception that you can claim that a vehicle is 100 percent business use if it has signwriting on it. It’s not – you still need to keep a logbook so you can claim the appropriate business-use portion of the expenses.”
- Overstating income: “Occasionally businesses will accidentally overstate their income by incorrectly allocating deposits to a sales account when they aren’t actually sales. Examples could be monies an owner has lent the business, GST refunds or tax refunds. Make sure you go through your Profit and Loss statement and double check what you have disclosed as income
- Overstating expenses: “Double check your Profit and Loss for expenses too. Are the all business related? If they are partially business and partially personal estimate an appropriate percentage to help your accountants get the claim right in the final figures being sent to the ATO.”
- Forgetting Fringe Benefits Tax (FBT): “Business owners sometimes forget to apply FBT rules for benefits provided to an employee which may also be the business owner if the business is being operated via a company or trust. There’s private use of motor vehices to consider, correct FBT treatment of utes, maybe monies have been lent to employees and then there’s the wining and dining throughout the year that may be subject to FBT or may not be tax deductible. These come with a whole host of specific rules to comply with, so speak with your accountant to make sure you’re not in the firing line of the ATO’s FBT grinch. Just in case you are though, make sure you are able to supply the appropriate records, calculations and declarations.”
- Incorrectly claiming on finance: “When it comes to finance, there’s a difference between the tax and GST treatment of a lease, loan and chattel mortgage for finance and there’s aso special rules for luxury vehicles. Make sure you provide to your accountant the tax invoice and the finance agreements for all new purcases during the year.”
- Getting GST right: “At the end of the year, your accountant will adjust and reconcile the GST that you have paid to the ATO during the year to ensure so expect an adjustment – let’s hope your recordkeeping has been pretty accurate during the year so this adjustment is kept to a minimum. The main areas where GST is overclaimed is on expenses that have no GST which are donations, motor vehicle registration, bank charges, interest, stamp duty and purchases made from suppliers that are not GST-registered.”
Regardless whether you’ve already filed your tax return or you’re only just starting to think about it, now’s the time to consider how to best streamline this process and get the most out of your return, while also avoiding any awkward conversations with the ATO.
Want to get ahead of your tax planning for the financial year ahead? For a new or small business, MYOB Essentials has everything you need to track income and expenses, store receipts and much more besides. Start your FREE 30-day trial today.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’ circumstance will vary for end of financial year.