It’s Tax Time again!
This edition of TaxWise outlines some tax changes for 2018-19 that should be considered by small businesses when preparing tax returns for 2018-19. There are also some tax tips and lodgment dates that businesses may find helpful when preparing returns. Focus areas that the ATO will be looking at have also been listed.
Tax changes for 2019
There have been some tax changes for small businesses for 2018-19 in relation to:
Expanding accelerated depreciation
The Federal Budget raised the instant asset write-off threshold to $30,000 from Budget night and expanded the number of businesses who could access the write-off to businesses with turnover less than $50 million. The write-off will be accessible to eligible businesses until 30 June 2020.
The lifting of the threshold and extending the availability of the concession to many more businesses is most certainly a positive step. However, it does leave businesses in a situation where they will have to deal with three different thresholds in the 2019 income year if they want to actually claim the offset.
The thresholds will apply in the following way in the 2019 income year:
It is important to note that the instant asset write-off threshold now includes businesses with a turnover from $10 million to less than $50 million.
Tip! Such a simple concession so favourable to small business is unnecessarily complicated for the 2019 income year. If you don’t get the timing or the amount right, you could miss out. You should ask your tax adviser to make sure you don’t miss out.
Increasing access to company losses: ‘Similar business test’
Most businesses will be familiar with the ‘same business test”. However, from 1 March 2019, there is also a more flexible test called the ‘similar business test’.
The purpose of these tests is to determine whether a company’s tax losses and net capital losses from previous income years can be used.
The new test should make it easier to access past year losses when companies enter into new transactions or business activities.
Under the similar business test, a company (and some trusts) can access losses following a change in ownership where its business is similar having regard to various factors, including the:
Single Touch Payroll
Do you have employees? Are you ready for Single Touch Payroll?
If an employer reports through Single Touch Payroll, they are not required to provide a payment summary to their employees. Not all employers are reporting through this system yet. It only became compulsory for smaller employers from 1 July 2019.
Under this system, many individuals will no longer receive a Payment Summary (Group Certificate) from their employer due to the introduction of Single Touch Payroll. Individuals will find they have an ‘Income Statement’ through their myGov account.
Tip!Small businesses need to be ready for Single Touch Payroll.
International tax changes
Hybrid mismatch rules
There have been changes to the hybrid mismatch rules. These rules are designed to prevent entities that are liable to income tax in Australia from avoiding income tax or obtaining global double tax benefits through hybrid mismatch arrangements that exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.
There have also been changes to the thin capitalisation provisions. These rules prevent certain debt deductions (eg for interest expenses). The changes are designed to prevent double gearing structures. Double gearing structures use layers of ‘flow-through’ entities (such as trusts and partnerships) to issue debt against the same underlying asset.
Tip!These changes are complex. If they apply to your business, you should seek advice from your tax adviser. ■
5 tax tips for small businesses
A few tips that small businesses should consider when preparing their tax returns are:
Correct company tax rate
Companies will pay tax at the full rate of 30% or at the lower rate of 27.5% if certain eligibility requirements are met.
The ATO has published a useful table to help companies determine which tax rate is applicable.
A base rate entity is a company that:
Tip! Small businesses should make sure whether the 30% rate or 27.5% rate applies to them.
Small business income tax offset
The small business income tax offset can reduce the tax you pay by up to $1,000 each year.
To be eligible, you must be carrying on a small business as a sole trader or have a share of net small business income from a partnership or trust. The ATO has published the following table outlining the relevant turnover thresholds.
When determining whether you are entitled to the small business income tax offset, you need to determine your aggregated turnover.
Your aggregated turnover is generally your annual turnover plus the annual turnover of any business connected or affiliated with you.
Small business CGT concessions
There are four small business CGT concessions that may allow a small business to disregard or defer some or all of a capital gain from an active asset used in a small business.
If your business has disposed of an eligible active asset used in a business for a profit, you should consider if these concessions can apply to reduce the amount of tax payable by the business.
Broadly, these concessions are available when you dispose of an active asset and:
Tip! Your tax adviser can assist you in determining whether these conditions are satisfied. For example, your tax adviser can assist you in determining whether the asset in question satisfies the active asset test.
If available, these concessions can be very beneficial to small businesses. The concessions are:
Generally, a small business can deduct expenses that are related to earning assessable income and are incurred to run the business.
Common expenses that may be deducted include:
The line between business and personal expenses can easily be blurred when it comes to travel expenses. Make sure travel expenses are correctly characterised (or apportioned) as business or personal expenses.
The general rule for businesses is that you can claim deductions for expenses if you or your employee are travelling for business purposes. Such expenses can include:
You must keep proper tax records to claim travel expenses. The records need to be kept for 5 years and can include tax invoices, boarding passes, tickets. Records are also needed to detail how you worked out the private portion of any travel expenses. For example, if you travelled for business but extended the stay to go sightseeing and have a holiday. In this case, you will need to work out an appropriate apportionment of the expenses.
Depending on the length of travel, you may need to keep a travel diary as well. In fact, the ATO highly recommends a travel diary is kept for all travel expenses.
Some expenses that may be characterised as private and are not deductible could include:
It is vital that proper tax records are kept by small businesses. Small businesses need to keep records in relation to establishing, running or selling the business.
Legally, records must:
Tip! You’ll find tax time much easier if all your records are in order and readily accessible.
What are the ATO’s focus areas?
The ATO has identified the top 3 issues that they see as issues when small businesses lodge their tax returns:
Tip! You should keep these focus areas in mind when preparing your tax return.
Key lodgment dates
The ATO has produced the following table outlining the lodgment dates for 30 June balancers. If you use a substituted accounting period, different dates will apply.
Key tax dates