2020 has been a very challenging time for businesses, with coronavirus (COVID-19), bushfires and drought taking an unprecedented toll on many.
While tax and super may not be on the top of your mind during these times, the ATO want to make it as easy as possible for you and are there to help and support you. There are some things, like reporting JobKeeper and the cash flow boost, that will be new this year. Others, like claiming motor vehicle expenses, are not new but you might need a reminder of what to do.
That’s why the ATO put together these 13 tips for getting ready for tax time in 2020.
Most businesses use a tax agent to prepare and lodge returns – you can also reach out to them if you need help.
You may be able to reduce your tax bill if you are eligible for concessions such as instant asset write-off or immediate deductions for prepaid expenses. You may also be able to save time by estimating the value of your trading stock instead of doing a stocktake. Find out more about the different types of concessions at the ATO’s concessions at a glance page.
You can claim a deduction for most of the costs of running your business. But it’s also important to remember the three golden rules so you only claim what you’re entitled to:
The method you use to calculate your motor vehicle expenses depends on your business structure and the type of vehicle. For example, if you operate your franchise as a sole trader or partnership and the vehicle is a car, you can use the cents per kilometre method or the logbook method. However, if you operate your franchise as a company or a trust, you can’t use either of these methods and can only claim the actual costs based on receipts. Read more at the ATO’s motor vehicle expenses page.
If your home has been your main place of business (for example, if you have used your home as your main place of business because of coronavirus), you can claim deductions for the portion of expenses that relate to running your business. Your business structure also affects how and what you can claim. Find out more at the ATO’s home-based business page.
Include all your income in your income tax return, including cash, coupons, EFTPOS, online, credit or debit card transactions, and income from other platforms such as PayPal, WeChat or Alipay. You may also have income from business assets, other business activities or capital gains. Getting your income and expenses right, and keeping good records of them, will also help you keep track of your turnover and cash flow.
It has been an extra challenging year and many businesses may find themselves making a loss for the first time. If your business makes a loss, you can generally carry forward that loss and claim a deduction for your business in a future year. How you can claim a tax loss depends on your business structure. For more information, visit the ATO’s business losses page.
If you take money out of your company or use your company assets for private purposes, you need to report these transactions appropriately and keep proper records. There are different reporting and record-keeping requirements depending on how you have done it (for example, through your salary, a fringe benefit or a loan from the company). Find out more at the ATO’s Division 7A page.
JobKeeper payments are taxable and need to be included in tax returns. If you’re a sole trader who has received JobKeeper payments, you need to include the payments as business income in your individual tax return. If your business is a partnership, trust or company, and you received JobKeeper payments, you don’t need to include it as assessable income in your individual tax return – but you need to report it as part of your business income.
Your workers who have received JobKeeper payments won’t need to do anything different as the payments will be included in their regular income statement that you provide as their employer.
You don’t pay tax on the Cash Flow Boost credits as they are non-assessable non-exempt income, but you may need to report the amount for the purpose of other income tests. This is different depending on your business structure so talk with your tax agent for more detail.
It’s important that you understand what records you need to keep and ensure that they are complete and accurate. You need to keep most records for five years, store them in a safe place, and they must be in English (or easily converted to English). Check out the ATO’s record keeping page for more.
You can also use our record keeping evaluation tool to help you check how well you’re keeping your business records so you can make improvements in the future. Find this on the ATO’s record keeping evaluation page.
Good cash flow means having enough cash at the right time to pay bills and meet your tax, super and employer obligations. You can prepare a cash flow projection to help you see your likely cash position at any time. Find out how at the ATO’s manage cash flow page.
You can also talk to a registered tax professional about managing your cash flow and they can help you work through our cash flow coaching kit.
In tough times like these, it’s more important than ever to look after yourself and the ones you love. The ATO has information available to support small business owners and their mental health.
You can also check out the Australian Small Business and Family Enterprise Ombudsman’s My Business Health web portal for practical tips.
If you are having difficulty meeting your tax and super obligations, the ATO can work with you to develop a tailored payment plan and defer lodgements and payments.
The ATO wants to work with you to solve problems before they escalate. It’s never too late to speak to them.
If you’ve been affected by COVID-19, or a disaster such as a bushfire or drought, and need some help with reconstructing records, visit the ATO’s reconstructing your tax records page.
If you need some extra help with your tax and super affairs, you can contact the ATO or your registered tax professional are there to help make it easier for you to get your tax and super right.