What are the common business expenses I can claim? – by Grace

/in /by

The 3 Golden Rules

To claim for a business deduction:

  • it must be a business expense (not for private use)
  • claim only portion related to business if it is of mixed use (for both business and personal use)
  • keep receipt as record and evidence to prove.

What can be claimed?

The following lists the allowable deductions for businesses expenses:

  1. Business travel expenses

Airfares, train, bus or taxi fares when travelling for business or paying for employee travel can be claimed.

To claim expenses for overnight travel:

  • one night or more – keep written evidence of all expenses
  • six or more consecutive nights – keep a travel diary recording all the information of business activities.
  1. Motor vehicle expenses

The motor vehicle expenses you can claim and how to calculate the deductions depend on:

  • your business structure i.e. sole trader, company, partnership or trust;
  • the type of vehicle i.e. car, motor bike;
  • how the vehicle is used.

Motor vehicle expenses from employee use are business related expenses for the employer. If the vehicle is for private use, fringe benefit tax (FBT) may apply to the employer.

  1. Repairs and maintenance

The expenses spent on repairs and maintenance on your business assets can be claimed. This includes:

  • painting;
  • mending leaks
  • conditioning gutters;
  • plumbing maintenance;
  • repairing electrical appliances;
  • repairing machinery.
  1. Running business from home

For home-based business, or home offices, you can claim:

  • occupancy expenses i.e. rent, council rates, land taxes, house insurance premiums
  • running expenses i.e. gas, electricity, water, phone, cleaning and depreciation of plant and equipment, furniture and furnishings.
  1. Salary, wages and super

Deductions for salaries and wages are calculated based on the business structure:

  • For a company or trust, any salaries and wages the company or trust pays to you or other workers can be claimed by the business.
  • For a sole trader or partnership, any nominal payment of a salary or wages to yourself or a partner is often considered as distribution of profit.

You can claim a deduction for super contributions you make for your employees.

For sole traders, you can claim a deduction for your own super contributions in your individual tax return. It cannot be claimed if you earned more than 10% of your total annual income from salary or wages.

If you hired a contractor, you can claim the amount you pay them.

  1. Other expenses

All other common expenses that can be claimed include:

  • Expenses on advertising and sponsorship;
  • Bank fees and charges;
  • Insurance premiums, i.e. accident, fire, burglary, motor vehicle, or workers’ compensation;
  • Stationery expenses;
  • Parking fees (but not parking fines);
  • Transport and freight expenses;
  • Clothing expenses (uniforms and protective or occupation-specific clothing);
  • Subscription costs for business or professional journals, information services, newspapers and magazines;
  • Costs for sunglasses, hats and sunscreen for outdoor work;
  • Registered tax agent and accountant fees;
  • Tax-related expenses.

To find out more about what deductions are claimable for your business speak to one of our accountants at Simpro Taxation Services or visit the ATO website.

Reasons to Hire an Accountant – by Grace

/in /by

An accountant can help you in the various stages of your business’s growth from setting it up to providing financial advice. For instance, if your work pay rate is $50 and you use 20 hours to do your taxes. Then, doing your taxes will cost you $1000 with the possibility of making errors. Is it a good use of time? If you get an accountant to do it, you have more time to earn. Moreover, you do not have to worry because it will cost less to let the expert deal with it.

Why & When to Hire an Accountant?

1. Advice on Business Structure, Business Plan & Setup

If you’re planning to start a new business, you want to start on the right foot.  To avoid the all the hassle and dilemma on business decisions, an accountant can help ease your life. Hire an accountant so they can assist you with:

  • Determining the best business structure for you;
  • Determining whether you need to register for GST;
  • Estimating the business start-up costs, operating costs and revenue forecast;
  • Providing advice on the accounting procedures and software that suits your business;
  • Providing advice and assistance on opening business bank account;
  • Creating a realistic and professional business plan for your business success;
  • Providing payroll solutions.

2. Deal with Tax-Related Matters

Accountants will be able to help you with preparation of your business activity statement and GST reports. They keep up with changes in tax regulations to ensure your business complies to all tax obligations and help save cost by minimising tax liabilities.

3. Help with Financial Tasks

You can maximise your profits by having an accountant analyse your business data. Often, business owners do not realise that their business has a large overhead, are over-staffed or has an excess inventory. They have great potential in gaining more profits but lose out their opportunity due to the lack of insight. They can help you understand your business better through analysing your financial statements.

Accountants prevent you from being audited. However, if your business does get audited, they are able to provide you guidance to get you out of it.

Small businesses want to save cost and think that they can’t afford an accountant. However, you don’t always need to hire a full-time or part-time accountant because you only need a couple of hours of their time. You can contact us at Simpro Taxation Services if you require any advice or help.

Why bookkeeping is important? – by Brenda

/in /by

What is bookkeeping?

Bookkeeping is the process of recording, organising and reporting financial transactions of an organisation on a daily basis. It may be your least favourite business matter to handle, however, it plays an important role. It is the initial step in alleviating the growth of your business by showing your business performance and financial status.

The Importance

1. Financial Management & Analysis

Good bookkeeping ensures that you able to manage and evaluate your cash flow through an organised system. It also allows you to keep track on invoices owed to you and make timely payments. Delaying your invoices or payments may lead to business failure thus proper bookkeeping is necessary for the smooth running of the business.

2. Tax Obligations

You can easily file your tax returns if you do proper bookkeeping. You do not need to go through the trouble of looking for bills and documents of expenses because they are properly recorded in the financial statement. When you visit your tax advisor next time, you can use the time to obtain better tax advice instead of fixing the incorrect entries in your financial statements.

3. Easier Reporting to Investors

In order to attract more investment into your business, you need to attract the investors. You can present to the investors the development your business and its current and prospective position by accurate bookkeeping. Infographics, charts and graphs can be easily presented by obtaining all information from the book of accounts. The investors are able to able to understand your plans and increase the likelihood of receiving more investment by clearly stating where expenses are required to boost the business. Bookkeeping also helps ease your annual report to current business investors.

4. Business Planning

The Balance Sheet and Profit & Loss statements keeps your business’s finance in check that it is on the right track so that business planning is easier and more effective. Based on evaluation of your business’s current position, you can make sound decisions for your business’s future. It helps the business secure funds and save it from unexpected circumstances such as heavy tax payment or future investments.

5. Audit Protection

Bookkeeping helps you keep track on your business financial transactions. You can easily retrieve information easily during auditing with a well organised system. Moreover, the Australian Government requires you to keep proper records to ensure that everyone is honest.

6. Saves Time and Money

Proper bookkeeping allows you to easily identify the expenses that the business has been spent on. When doing your tax return, you can avoid the hassle and easily claim the amount you are entitled to. Consequently, you will save time and money to help your business grow.

Therefore, bookkeeping helps in leading the success and smooth running of your business.  Proper bookkeeping saves your time and money by easing your way through tasks such as reporting to investors, business planning, filing your tax return and providing evidence during auditing.

If you require any advice or need to hire an accountant, don’t hesitate to contact us at Simpro Taxation Services.

If I just started a new business, do I need a software to keep track of records? – by Brenda

/in /by

Generally, it is not a must to use a software for record keeping. In the following text, the importance on record keeping and features of record keeping manually and electronically will be discussed.

Importance of Record Keeping

According to the Australian taxation ruling, your business records must be kept or you can incur penalties. They must:

  • be kept for a minimum of five years or longer.
  • be in English or in a form that can be easily translated.

Some other advantages of good record keeping includes:

  • being able to analyse your business and make good business decisions;
  • providing information for future business planning;
  • demonstrate the financial position of your business to banks, lenders, and potential buyers;
  • protect your business from disputes or any legal issues;
  • to complete and lodge your tax returns;
  • keeping up with tax and legal compliances.

Tips on Record Keeping

  1. Gather all your receipts and bills.
  2. Sort and group into types of expenses.
  3. File them according to the order of paid date.
  4. Separate the paid and unpaid bills.
  5. Keep these records in proper folders. If you want to store them electronically, scan the bill or receipt and arrange them by year, then by alphabets.
  6. Ensure the tax invoices contain all the information required by ATO.
  7. Cross reference your records by noting down invoice number on cheques and vice versa or the date and method of payment for electronic payments.

Record Keeping by Paper

These records can be kept on paper so it is not necessary to have a software to store them. Paper or hard copies of records are often the original copies which are used as evidence to support electronic records when a legal matter arises.

Business owners often opt for manually keeping records as it:

  • saves cost;
  • avoids problems such as having multiple copies of the same records;
  • is easier to handle documents as you do not require knowledge on software.

The drawbacks of manually keeping records are that they:

  • are often misfiled;
  • are often damaged to exposure to water or sunlight;
  • require a lot space to store these paper records.

Electronic Storage of Records

However, it is definitely more beneficial to store them electronically. The right software will be able to help you ease your tasks by:

  • making calculations and tally amounts automatically;
  • producing necessary reports, invoices and summaries for taxing purposes;
  • serving as back-up in case of flood, fire or theft;
  • saving physical storage space;
  • allowing easy duplication, organisation and search of files;
  • linking to lodgement systems to save time when reporting to ATO.

The disadvantages are:

  • the possibility of losing data or data corruption if the records are stored in a hard drive or USB device.
  • requiring additional security to ensure all information are protected from computer viruses or unauthorised access.

If you require any advice about the setting up or finding a system that best suits you, don’t hesitate to contact our accountants at Simpro Taxation Services.

Why we need financial statement? – by Brenda

/in /by

What is a financial statement?

Financial statement is a collection of documents and reports which accounts for the financial status and activities of an individual or a business. It shows where the money is from, where it went and where it is now.

The financial statement consists of:

  1. Balance sheet
    – Shows the company’s financial status at the end of specified date and the company’s assets, liabilities and shareholder’s equity.
  1. Income statement
    – Shows the revenues, expenses and profits of a company over a specific time period.
  1. Cash-flow statement
    – Shows the company’s cash inflow and outflow during a period of time.

 

The purpose

The general purpose of the entire set of financial statement is:

  • To determine the ability of a business to generate cash, and business transactions such as the sources and expenses.
  • To determine the business’s capability to pay back debts.
  • To determine the trends in the finance results of company operations.
  • To evaluate financial ratios from the statements to understand the business performance.

The financial statement provides important details of a company’s financial position, profitability and activities (involving its finance, operation, investment). The shareholders, investors, banks or vendors use it to analyse a company for the following purpose:

  1. Investors
    – To decide whether to invest, and to determine the price per share to invest.
  1. Lenders
    – To determine whether to loan to a business, or restrict the amount already loaned.
  1. Government entities
    – To tax the business.
  1. Acquirer
    – To determine the price to offer to buy the business.

Beware Cash Income on ATO’s radar – by Brenda

/in /by

Cash payment is preferred by most customers and businesses for small transactions to avoid card and electronic payment fees. However, some businesses overlook on the fact that they have to disclose their cash earnings. Cash is hard to trace when not banked in, so this attracts attention from the ATO. Some people of the cash economy deliberately want to avoid tax obligations and breach employment laws. Therefore, the ATO has come up with third-party data and risk analysis to track down undeclared income costs.

Who?
The ATO is now targeting small service sector businesses that receive cash payments. These include businesses such as:

• Cafes and restaurants,
• Butchers,
• Convenience store owners,
• Hair, beauty and nail salons,
• Carpentry and electrical services,
• Building trades,
• Road freight businesses,
• Waste skip operators, and
• Cleaners.

How to safeguard?
For employees:
Your employer may pay you in cash, rather than into your bank account. It is legal and more convenient but some businesses deliberately pay their employees by cash to avoid meeting tax and employee obligations.

If you are being paid cash, you:

• must declare the cash as income when you lodge your tax return.
• should receive a pay slip showing all your earnings and the amount of tax taken out.
• should receive a payment summary at the end of the year which shows your full annual earnings
and the amount of tax deducted.
• should check that your employer is making super contributions on your behalf.
• must declare tips on your tax return – regardless of how you receive them (tips from your
employer or directly from customers)

For businesses:
In order to protect your business from being targeted:

• Deposit all cash payments into bank accounts;
• Keep evidence to support your income, expenses and lifestyles;
• Ensure you can account for stock used for private purposes; and
• Analyse the performance of business in comparison to other similar businesses in the same
industry by using ATO small business benchmark tool.

If you need help with documenting your business income, expenses and stock, calculating whether your business is performing within the small business benchmarks or require more advice on how to keep your business out of the ATO firing line, contact or visit us today at Simpro Taxation Services.

How ATO tracks?
The ATO collects information from various sources including banks, employers, merchants and government departments and compares this information with your income tax return. At great lengths, the ATO may obtain information about your business from suppliers, to calculate your turnover should be. The ATO can find inconsistencies by matching the calculated turnover with your actual based on your income tax and GST reporting.

If the ATO identifies discrepancies, you may be examined by the ATO and formally audited. For example, there is inconsistency with cash received in your bank account or expenses and your income as declared in tax returns.

The ATO collects information of every business in Australia to create profiles of businesses based on their different characteristics. This is to benchmark and compare its income, costs profit margins and profitability.

For example, if most of your business income is from selling goods but the business also renders services. When the tax return is done, the business code chosen is for the service industry where most of your income does not come from. This will cause the ATO to compare your business with businesses of a completely different industry. This will then lead them to think your business has fallen outside the industry benchmarks. So, if your business’s figures falls outside the small business benchmark figures when compared to other businesses similar to yours in your area, the ATO will be interested to find out why.

You may be audited even if you have a good reason for falling outside the ATO benchmarks and haven’t done anything wrong. Hence, it is important to ensure your accountant checks that you are within the benchmarks for your industry and choose the correct industry code to avoid being audited or out of the ATO’s radar.

Why should I care?
If the ATO concludes that a taxpayer has undeclared income, he/she is generally liable for tax on the undeclared income plus interest charges and penalties. Penalties can include fines and, in the case of criminal prosecutions, imprisonment.