Many Australians can look forward to a "bumper tax return" this year, after the Federal Government brought forward stage 2 tax cuts in the 2020/21 budget, in addition to extending the Low and Middle Income Tax Offset.
Small-to-medium businesses (SME) also benefited from the budget, with a number of tax incentives announced, including:
Temporary full expensing - If your business has an aggregated turnover of less than $5 billion per year, you may be eligible to immediately deduct the business cost of new depreciating assets
Temporary loss carry-back provision - Eligible businesses with a turnover of less than $5 billion will be able to carry back losses made in a relevant loss year to use against income tax liabilities paid in relevant previous income years
Extension of loan scheme for small business - Open to businesses with a turnover of less than $250 million, the scheme helps eligible small businesses access finance at a lower credit rate
While this is great news for businesses, there are more ways you can maximise your tax return. Here's how to ensure you don't leave any money on the table this tax time.
1. Line up the right documents
With tax time upon us, you're probably starting your mental list of business expenses to claim and the documents you need. This year is made more complex by the unusual circumstances we worked in during 2020. Your accountant is a wizard, but you can make their magic easier by providing all the correct documentation in a readily digestible format.
If you've been showing up in late September with a shoebox crammed full of receipts, chances are you have not been getting the most out of your returns. Accurate record keeping might seem like a chore, but it saves you work down the line and will have a big effect on the bottom line of your notice of assessment.
If you're a small business owner struggling with record keeping on top of your day-to-day operations, employing a bookkeeper for a few hours each week will more than pay for itself.
Always keep in mind that the ATO's myDeductions app is a great solution for individuals and sole traders with relatively simple tax affairs.
2. Don't forget your work-from-home expenses
2021 was a financial year like no other, with many Australians working from the comfort (or madness) of their own homes.
For 2021, there are two main methods to calculate your deductible working from home expenses:
Actual cost method – You can calculate the actual running expenses related to your time working from home. The ATO's home office expenses calculator may be useful to assist with the calculation. Running expenses may include electricity, equipment depreciation and phone and internet expenses.
Shortcut method – The ATO recognises many taxpayers have been working from home due to Covid-19 and may not be comfortable or familiar with calculating actual work-from-home expenses. The ATO has therefore temporarily introduced the shortcut method, offering taxpayers the ability to claim 80 cents per hour (up from 52 cents in the normal Fixed Rate method) for time spent working from home between 1 March 2020 and 30 June 2021. If you use this method, this covers all expenses including electricity, equipment depreciation, phone and internet, so you can't claim any other expenses for working from home.
You should consider which method works best for your circumstances and note the record keeping requirements for each.
3. Write your business assets off immediately
As mentioned above, small and medium enterprises were the biggest winners in the 2021 federal budget.
With tax cuts, changes in government procurement policies to favour small businesses, the introduction of loss carry back provisions and the temporary full expensing, you can see why.
The temporary full expensing incentive could well be the most exciting for SMEs, allowing you to write the full cost of assets off immediately, rather than depreciating their value over a number of years. If you've been considering investing in equipment to improve productivity or efficiency, there really is no time like the present, as these kinds of investments have never been more tax effective.
If you would like to take advantage of the temporary full expensing incentive for new or second hand asset costs in this year's tax return, speak to your accountant to ensure this is right for your circumstances and contact your broker today to learn about your finance options.