Australia’s small business landscape is set for a shake-up, and with tax time just around the corner, small businesses should be aware of what’s in store.
Here are some common tax time pitfalls and some handy tips to help small businesses get a head start:
Changes small businesses should know for EOFY 2019
Single Touch Payroll is kicking in
Single Touch Payroll (STP) is the new way of reporting tax and super information to the ATO. It’ll become mandatory from 1 July 2019, so businesses who aren’t yet STP compliant had better hop-to.
Where businesses would report payroll activity once a year, from 1 July this year they’ll be required to do it after each pay day in a specific digital format called Standard Business Reporting (SBR), doing away with paper forms. But it means businesses have to have software or have a service provider that can produce the proper reports.
Employers of 20 or more staff should already be reporting through STP, while smaller businesses with 19 or less employees will have to report through STP from 1 July 2019. ‘Micro’ businesses, with only one to four employees, have a number of alternative options available.
According to a recent study by Xero, more than half (55 per cent) of small businesses didn’t know what STP was. If you’re not clued in, find out more information about STP from the ATO.
Minimum wage is rising from 1 July 2019
The minimum wage is set to rise by 3 per cent, with the new rate of $19.49 per hour to kick in from the first of July.
If you’re an employer, it means – from this date – you’ll have to start paying your staff the new minimum rate (if they’re on the minimum wage). Do you operate in a particular industry that is covered under an award? Find out the award rates in your industry on the Fair Work Ombudsman’s website.
Instant asset write-off raised to $30,000
The threshold for the instant asset write-off has been raised to $30,000, and extended to 30 June 2020.
It also now covers businesses with a turnover of $10 million to under $50 million; these businesses can claim a deduction of up to $30,000 for each asset, first used or installed for use from 2 April 2019 until 30 June 2020.
For businesses whose turnover is $10 million or less, they can also claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:
$30,000, from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
$25,000, from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
$20,000, before 29 January 2019.
Read more about the instant asset write-off increase on the ATO’s website.
Cash-in-hand crackdown from 1 July
Cash-in-hand payments will no longer be tax deductible from 1 July 2019. Employers don’t need to comply with pay-as-you-go (PAYG) withholding requirements with these cash payments, and the government is in the midst of a big crack-down on businesses engaging in the black economy.
Additionally, cash payments to contractors that don’t provide an ABN will lose out on tax deductions. Find out more about the revoking of cash-in-hand payment tax deduction on the ATO’s website.
Taxable payments reporting system extended to more industries
From 1 July 2019, the taxable payments reporting system (TPRS) – under which some businesses need to report payments made to contractors to the ATO – will be extended to the road freight, IT, security, investigation or surveillance service industries.
The TPRS regime was originally applied to the building and construction industry, and in 1 July last year was extended to contractors in the cleaning and courier industries.
But if you’re doing the right thing, you don’t need to be alarmed or concerned in any way, Xero head of industry’s Matthew Prouse told Yahoo Finance.
“These changes are another reminder of the benefit and importance of up-to-date and consistent records,” he said, adding that the new measures were to ensure ethical small businesses “ha[d] a fair go on a level playing field”.
Open banking open for business
Years in the making, the Big Four banks will kick off ‘open banking’, a new financial system that gives Australian consumers the power to give their banks permission to direct their personal financial data to other banks, financial institutions or authorised organisations if they wish.
The aim of open banking is to make financial products more competitive, which promotes better and cheaper products and services, and lower prices for the consumer. Finder.com.au has a pretty nifty explainer here.
Common tax mistakes small businesses make (and how to avoid them)
When it comes to the problems small businesses most frequently stumble over, the tax man has highlighted the following three areas:
Failing to report all of their income
Not having the necessary records to prove small business expenses claims
Claiming private expenses as business expenses
According to ATO assistant commissioner Peter Holt, these are the golden rules for claiming deductions:
“One, the expense must have been for your business not yourself. Two if you use something for business and private purposes, you can only claim the portion that is related to your business, and three, you need a record to prove it.”
Prouse said there were five areas small businesses trip up on time and time again.
Here’s what they are, and how to avoid them:
1. They go it alone
Small business owners wear lots of hats and manage various – and in some cases, all – aspects of their business, including the finances.
“However, going it alone can result in unintentional mistakes being made at tax time – exposing you to errors and potential fines,” Prouse said. Lighten the load by bringing on board a registered accountant or bookkeeper, who can help you lodge your tax return.
2. Their tools are outdated
There’s a higher risk of human error if you’re manually recording accounts on paper or in Excel sheets – and you’re also wasting precious time. Prouse says there’s lots of online tools, apps and resources available for small businesses to mitigate the hassle of tax time.
The business tab of the ATO smartphone app can be a great place to start; receipt keeping can be made simpler with Hubdoc or Expensify; and online accounting and payroll software tools such as Xero or MYOB can make life easier.
3. They’re not across regulation changes
Small businesses have enough to do without keeping abreast of regulatory changes in their industry – so now is a crucial time to catch up before tax time rolls around.
“This also includes tax legislation such as Single Touch Payroll or tax deduction rules and limitations. The best way to do this is to speak with a qualified registered tax agent or the ATO,” said Prouse.
4. They’re rushing to get their records in order
In an ideal world, yes – you’ll have perfect records of your income and expenses from the entire financial year. But reality often doesn’t live up to this ideal picture.
“You can find yourself in a rush to reconcile receivables, pay outstanding bills and chase down late payments. Businesses can write-off bad or non-recoverable debt – meaning they can be claimed as a tax-deduction,” said Prouse.
Tax tips for small businesses in 2019
Make – and claim – your big purchases
“Remember that instant asset write-off was increased to $30,000 this year, so make sure you flag those asset purchases to your accountant and claim,” MYOB general manager of partners Blake Collins told Yahoo Finance.
“Whether you need a vehicle, plant equipment, or other work-related machinery, up to $30,000 of the purchase price can be immediately written down,” said Xero’s Prouse.
Now is also the time to review your fixed assets, with the help of an accountant to help you manage the depreciation and disposal of your business assets over the year.
“You should keep a record of all assets purchased, and have your advisor set up a register to record and depreciate your fixed assets,” Prouse added.
Get your paperwork sorted
If you haven’t made a head start on your paperwork already, it’s time to move.
“Collate all your receipts, invoices and bills and get them in an order that makes sense to you,” advised Collins.
One way to make this process easier on yourself is to collect them by like-for-like types of expenses.
“Make sure you align all your receipts and invoices to your bank transactions,” he added. “The better this is captured, the less time your return will take to do.”
Prouse said small business owners would be doing themselves a favour by following up on the year’s quotes, draft invoices and billable expenses to start the new financial year with a clean slate.
“It always pays to plan ahead, so make sure you have the necessary documents ready for your chat with your accountant or bookkeeper. They’ll be able to tell you what records they need.”
If you buy and sell goods, EOFY is a good time to take stock of your inventory, said Prouse. Businesses with turnover under $10 million will have to do a stocktake if the estimated difference between stock level at the beginning of the year and end of the year is more than $5,000.
“You can claim a deduction for most expenses you incur on buying, maintaining, repairing and selling business assets or stock, either immediately or over time.
“As well as the stock you sell, you’ll want to include buildings, fixtures and fittings, plant and equipment, cars and trucks, office equipment and computers.”
But if you’ve got an accountant, consult them, since stocktakes can impact your tax planning, Prouse advised.
If you thought Single Touch Payroll doesn’t affect you, you’re wrong: the new digital reporting requirement kicks off 1 July 2019, so you’ll have to get on board.
“Make sure you understand what you need to do,” said MYOB’s Collins.
Proust added that small businesses who haven’t yet made the transition to STP should work with their accountant and bookkeeper to become compliant sooner rather than later.
But if you’re already on board with STP, all you have to do now is finalise payroll figures, with this arduous EOFY task much simpler than it used to be.
Goodbye annual payment summaries for each employee (PAYG) or employer (PSAR). “Also gone is the need to download and manage an unwieldy PAYG report file for large employers.
“And perhaps best of all, you can close out payroll for terminated employees at any time rather than waiting until year-end.”
Get expert advice
Finally, if you’re unsure, put yourself in the best position by engaging a tax professional.
“A tax agent can usually save you even more than you would normally by identifying extra areas to claim,” said Collins.
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