10 Small Business Tax Facts You Must Know in 2013

I met with a client the other day and we entered a discussion about small business and GST. With my background in accounting clients often ask me questions about their small business tax issues.

This client was under the assumption that if he purchased goods from a private seller he was entitled to a GST credit; even though he had not paid GST on the goods when he purchased them. In fact, he was about to lodge his BAS and claim a $10,000 GST refund. You cannot claim GST when no GST has been paid on the goods. My greatest concern from this discussion though was that this client seemed to be well aware of a number of GST schemes going on out there in the business world and was willing to participate. 

THE POWER OF THE ATO

There is absolutely nothing wrong with finding ways to minimise your tax. In fact, one of the primary reasons for having an accountant assist you with your small business is to ensure you are successfully minimising your tax. There is, however, a clear boundary between minimising tax and operating outside the law.

In 2012 the ATO introduced new legislation placing far greater responsibility on the shoulders of the company director. No longer can a small business avoid paying PAYG, Superannuation and business tax. Should you avoid paying these liabilities then decide to close your doors due to tax debts you cannot afford to repay , you become personally responsible for these debts.

The ATO have also become far more diligent in collecting debts and will place your business into liquidation to ensure they are paid in full, if necessary. 

NO TAX REFUND IF NO TAX PAID

A common misconception by small business owners is the tax refund. Many small business owners think if they make a loss for the financial year they will receive a refund when they lodge a tax return. Incorrect. No tax paid? No refund received.

THE ATO WILL NOT KNOW IF I PAY MY STAFF IN CASH

Wrong. Not only is this illegal, I have personally seen this come back and bite a business owner in the backside. A number of employees became disgruntled and complained about not receiving payslips. The ATO soon realised wages paid were not on par with the industry average and undertook an audit. The result? Business closed, $2mil owing, director in jail. True story, Gold Coast business January 2013.

RUNNING YOUR BUSINESS FROM HOME

Many small business owners buy a home and start claiming a portion of the interest repayments on tax. Be careful, for if you sell your property for a profit you may need to pay Capital Gains Tax (CGT). You can, however, claim a portion of your utilities, phone and internet.

IMMEDIATE $5000 CAR WRITE OFF

Time for you to upgrade your vehicle? The good news is any vehicle purchased for business purposes can claim an immediate $5000 deduction in the 2012-2013 financial year. Why is this relevant? If you make a profit this financial year then it will be reduced by an additional $5000, making a big difference to your tax bill.

IMMEDIATE DEDUCTION ON ASSETS UNDER $6500

If you have purchased assets (printers, computers, technology, furniture, machinery) and the cost less than $6500 each, you can generally claim an immediate deduction, thus reducing your end of year tax bill significantly. 

GST - CASH VERSUS ACCRUALS

A business does not need to register for GST until they turn over $75,000 in a financial year. This means you do not charge GST, and you are not entitled to claim GST on your expenses. 

If your business is registered for GST, you will report on either a Cash or Accruals basis. How do you find out? Look at the top right corner of your BAS where the Document ID is. The statement will say Cash or Accruals. 

Cash means you account for transactions as they happen. You do not pay GST on your invoices until your client pays you, and you do not claim GST on your expenses until you have paid your supplier.

Accruals means you report on sales invoices and supplier invoices at the dated they are issued, not the date they are paid. 

Make sure you are using the method most suited to your business type as this can have a huge impact on your cash flow.

SUPERANNUATION IS RISING

Superannuation is a burden to small business. These additional payments greatly affect cashflow. The bad news is they are on the rise from 9% to 12%. Although incremental over 3 years, this is an expense no business can get away from. 

TIP ! Create a bank account for super, PAYG and GST and religiously contribute to this account weekly.

The financial year ends 30 June 2013, are you prepared? For questions on this topic head to our Facebook page and message us.