Do you have opportunities to increase the money you've worked so hard to earn? Unfortunately, when attempting to get the most money back from their taxes, a lot of individuals miss out on possible deductions because they either aren't aware of them or just aren't organised enough to take advantage of them.
Learning how to raise the amount of money that you keep is an excellent method to make the most of your tax return, especially considering that the typical tax return in Australia is around $2,574.
How do you get started, particularly if you are not an experienced tax preparer? The process of getting ready for tax season is a lot simpler these days than it was in the past. You’ll be able to dramatically decrease the amount of stress (and time) associated with getting your financial life in order if you use a few straightforward programmes and get familiar with the fundamental laws governing deductions.
You can lower the amount of revenue that is subject to taxation by claiming a deduction for most of your business’s costs when you file your tax return.
Your income is subject to tax in Australia according to the following formula, which is used by the Australian Taxation Office (ATO):
Calculating taxable income is as simple as subtracting tax deductions from taxable income.
The majority of the money you make from operating your company is considered taxable income (income subject to tax).
The sun has gone down, the sales have begun, and the hearts of Australia’s accountants are filled with dread at the sound of every ringing phone.
Yep, it’s that time of year again — tax time.
The last month of the fiscal year is presumably treated the same as any other by the few owners of small businesses who have a firm grasp on both their financial situation and their legal responsibilities regarding taxes (must be nice). However, the dreaded deadline of July 1 is drawing near, and for the great majority of taxpayers, this means a mad dash to dig up old receipts and a frantic search on Google for information on the deductions that may be claimed.
We have developed a list of tax recommendations to assist you in getting your affairs in order and your claims finalised before it is too late to help alleviate some of the strain you may be feeling.
It is easy to understand why the economy’s small company sector is sometimes described to as the “engine room” of the economy and the “biggest employer in the country.” Recent research by the Council of Small Business Organizations of Australia (COSBOA) found that 5.1 million jobs, or over half of all employment in the private sector, were created by small businesses. The Australian Tax Office estimates that there are about 3 million small businesses in the country. Despite the fact that it excludes fundamental production issues, this figure represents about 96 percent of all businesses.
Because of the many duties that come with owning a small business, it is easy to forget about work deductions that might significantly influence the amount of taxes you pay.
Xero, a company that provides cloud accounting services, conducted research that found that forty percent of small business owners in Australia are uncertain as to which costs are eligible for tax deductions. It should not come as a surprise, considering that the types of deductions that are allowed might shift from year to year and differ according to the structure of a company.
Even if you only spend a few minutes going through the small company deductions list provided by the Australian Tax Office, you might wind yourself saving a significant amount of money when it comes time to file your taxes.
With all the responsibilities small business owners have, it’s easy to overlook work deductions that could have a huge impact on reducing your taxes.
In the context of taxes, a small business is typically understood to be one that has a yearly turnover of less than $10 million, with the exception of the small business CGT concessions, in which case the turnover level is simply $2 million.
The law requires that the yearly turnover be computed using the ‘aggregated’ figures, which translates to the annual turnover (gross income, excluding GST) of each and every business that is considered to be “linked” or “associated.” This is done to stop companies from dividing their operations in order to bring their annual revenue down below the $10 million levels necessary to qualify for the various tax breaks.
You are eligible to take a tax deduction for most of the expenses associated with running your business, such as the pay of your employees, the cost of marketing, and the cost of financing the firm.
Preserve in mind that you cannot claim personal costs, and ensure that you keep documents to back up any claims you make.
If you or your workers travel for business, you may be eligible to claim the following expenditures:
Suppose you follow the requirements for simplified depreciation. In that case, you can immediately claim a deduction for any asset that was utilised for the first time or installed ready for use, up to the limits outlined in the following table:
If you run your business out of your house or if your firm has its headquarters in your home, you may be eligible to deduct a part of certain expenditures, such as the interest on your mortgage and the cost of your electricity.
If you sell your property, you might have to report it on your tax return and pay capital gains tax (CGT) on the portion of the residence that was used for business.
Your company is eligible to submit a tax deduction claim for business-related travel costs, regardless of whether the trip lasted only one day, lasted overnight, or lasted for many nights.
You may be eligible to receive reimbursement for the following types of expenses:
In order to be eligible for reimbursement for overnight travel expenditures, you need to have a permanent residence in a location other than where you are now working, and your job must require you to be away from home overnight.
You are required to claim your deduction in your income tax return using the amount that does not include the goods and services tax (GST) if you are eligible to receive input tax credits for the GST.
You can only do so when claiming reimbursement for business travel expenditures for the business-related component. You are required to deduct any private expenditures, such as:
For a company to be eligible to take a tax deduction for employee travel expenses, the firm must pay for the workers’ trips when they are required to do so for business purposes. The following are some of the ways the company can pay for the expense:
If your business reimburses or pays for its employees’ travel expenses, it’s possible that it will be charged fringe benefits tax (FBT). However, if you are eligible for any of the above exclusions or concessions, your FBT liability can be lessened. For instance, your business might not be liable for FBT if it pays an employee’s travel costs for attending a professional conference; the person could have claimed the costs as an income tax deduction otherwise if you hadn’t reimbursed them. Once more, this is because if you hadn’t reimbursed the employee, they would have been allowed to claim those costs.
You will be held responsible for FBT if an employee of yours prolonged their business trip for private reasons, and you reimbursed the employee for the additional expenses incurred as a result of this extension. In addition, it is possible that you may need to get some documents from an employee in order to comply with applicable regulations if your company offers benefits to its staff.
If you are a director of a corporation and the firm pays for private portions of your travel expenditures, Division 7A ramifications may also apply to your situation.
There are distinct factors to take into account depending on whether an employee is receiving a travel allowance or a living-away-from-home allowance from their employer.
Do you need to dress formally when you go to work? Or maybe your employer requires you to wear a uniform with the corporate emblem prominently displayed on it. Maybe you work at a clothing store, in which case you are required to show up for work dressed in garments purchased from that store. It is vital to clarify the dress code policy of your workplace to determine how to claim clothing on your taxes.
We have compiled a detailed guide describing what you may and cannot claim regarding your work-related clothes to assist you in getting the most out of your work-related clothing deductions while remaining compliant with the regulations and avoiding any complications with the ATO.
When it comes to the garments you wear at work, there are some deductions you may claim, including the expense of purchasing and cleaning occupation-specific apparel, such as the following:
The apparel and footwear you put on to shield yourself from the dangers of being ill or injured due to the nature of your work or the environment in which you carry out your duties at work. In order for the goods to be termed protective, they need to offer a level of protection against that risk that is adequate, and they could contain the following:
The term “work clothes” may only be applied to garments that are exclusive to a given line of employment and that cannot be worn anywhere else outside that particular establishment. This implies that you are not allowed to deduct the costs associated with acquiring or cleaning any form of professional clothes or office gear. This includes apparel such as the black pants and white blouse typically worn by bartenders.
Even if you work at a clothes store and must wear a specific outfit to work, you cannot deduct the cost of that outfit since it is not appropriate for your line of business. Similarly, even if you have to wear them to work, you cannot deduct the expense of those products because they are not related to your profession (you could also wear them outside work).
Normal attire, such as jeans, shirts, shorts, trousers, socks, and shoes with closed toes, is not regarded as “protective clothing” since it lacks any features designed to shield you from the risks associated with your line of work. One could argue, for example, that wearing footwear with closed toes protects one’s feet in some way from the dangers that exist in the job. Even if you may have foot protection, if it does not go above the standard degree of foot protection, you are not eligible to request a deduction.
As an employee of an organisation, you are expected to wear a uniform that clearly identifies you in some way. It should be a requirement to wear the uniform while you are at work, and there should be a procedure in place to ensure that this requirement is followed. If this is the case with your attire, the purchase of it may be tax-deductible. Examples of typical jobs that require employees to wear uniforms at all times are law enforcement officers, nurses, members of the armed forces, employees of airlines and supermarkets.
It is possible to deduct the cost of footwear items including shoes, socks, and stockings if they are required to be worn as part of a specialised or mandated uniform. In the same way that flight attendants and nurses are sometimes required to wear specific colours, styles, and types of uniforms, so too should the policy of your employer require this of you. It is also possible to file a claim for a single item of distinguishing clothing, such as a sweater, provided that the employee is required to wear the item while carrying out the responsibilities of their employment.
If your organization’s attire is one of a kind and easily distinguishable from that of other businesses, you can be eligible for an optional uniform exemption. If an item of clothing was developed and manufactured just for your employer, then it is regarded as being one of a kind. Your company’s emblem must be sewn onto your uniform so that it cannot be removed, and the garments themselves must not be sold to the general public.
You are not permitted to deduct the cost of purchasing or cleaning a straightforward uniform that does not include any logos, such as the typical black slacks and white shirts that wait staff workers wear. This includes the expense of replacing worn-out or damaged items. In most cases, the design of the work uniform needs to be registered with AusIndustry before employees are allowed to deduct the cost of any optional work uniforms from their taxable income. Shoes, socks, and stockings are not considered to be a part of a non-compulsory work uniform, nor is a single item like a jumper considered to be a part of a non-compulsory work uniform. Stockings are also not considered to be a part of a non-compulsory work uniform.
It’s feasible to recover the costs of washing, drying, ironing and dry-cleaning suitable work clothing. However, if both the amount of your claim for laundry expenditures and the entire amount of your claim for work-related expenses combine to be more than $150 and more than $300, then you are required to keep written documentation for your laundry expenses, such as diary entries and receipts.
Instead, you can calculate the cost of your laundry claim based on the following numbers, which the ATO will allow you to use if you perform the washing, drying, and ironing yourself:
It is feasible to make a claim for a tax deduction for the money you spent on nursing uniforms and other specialised apparel. Among the nurse-specific deductions that are available to you are the following:
If an item of your work attire, such as non-slip shoes, socks, stockings, or a tie, is considered mandatory and an important component of your work gear, you may be able to submit a claim for reimbursement of the costs associated with having it laundered as well as having it dry cleaned. This comprises attire that is designed specifically for your line of work. These are garments that aren’t of an everyday nature and are designed to help the general public identify you as a nurse.
Suppose you own a company and use motor vehicles, such as automobiles and certain other vehicles, in the operation of that company. In that case, you may be eligible for a tax credit for the costs associated with such motor vehicles.
Cars are classified as motor vehicles (including four-wheel drives) designed to carry passengers and cargo for income tax purposes.
Motorcycles, vehicles designed to haul either one tonne or more (such as utility trucks or panel vans), and passenger cars with nine or more seats fall under the category of “other vehicles” (such as a minivan)
The motor vehicle must either be owned outright, be leased, or be subject to an arrangement for hire-purchase.
You have the ability to make a claim for motor vehicles that you have supplied to an employee or that employee’s associate as part of their employment if you run your firm as a corporation or a trust.
You may be eligible to get reimbursement for the following expenses:
Suppose you use a motor vehicle for both your company and your personal life. In that case, you need to be able to appropriately identify and justify the percentage of the vehicle’s use that you are claiming as being for your business. The portion that is intended for personal use is not eligible for reimbursement. In this particular sector, mistakes are made rather frequently.
To keep track of whether you are travelling for business or pleasure, you can use a notebook or journal.
Except in the case where you run a home-based business, and the journey was for work-related reasons, commuting to and from your place of employment is regarded a private usage of your vehicle.
It’s possible that staying on top of your paperwork will be the last thing on your to-do list when running a small business. Therefore, while you concentrate on operating and expanding your business, our experts can assist you with organising your records and determining which tax deductions are applicable to your situation.
When it comes to purchasing or selling shares or units in company organisations, the latest modifications to the small business CGT concessions reflect a completely other ball game. They are designed to exclude a significant number of chances that could have been available in the past. Therefore, it is essential to have a solid understanding of the repercussions of the alterations, to carry out the necessary preparation in advance of a potential transaction, and to determine the course of action that will yield the most favourable results for each of the current owners.
Suppose the tax benefits of selling shares are not accessible to the extent that they may have been in the past, and the transaction is driven back towards the sale of company assets out of a business entity. In that case, it is important to keep in mind the related commercial conversations with the purchaser. In the event that it is desired to send monies out to the shareholders, either from the sale proceeds or from retained earnings or reserves, all the way through to the final winding up of the company organisation, this opens up another avenue of carefully discussing and preparing the matter.
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