How to Prepare Taxes for Small Businesses in Australia
According to the Australian Tax Office (ATO) small businesses play a huge role in the economy of the country. In fact, they account for ‘more than 99% of all Australian businesses and in total they contribute more than $413 billion to the economy and employ more than 5.5 million people’¹. The ATO’s tax regulations require that every small business prepare and pay its taxes on an annual basis, making this requirement of great importance to every business owner.
How to get started
To ensure your business has the strongest foundation possible to support it going forward, and to be profitable, it is of the utmost importance to get the structure of the business right from the very beginning. Making sure that every area of the business is covered before you open the doors is vital for the future success of all business ventures
To save you from experiencing any problems with your business in the future it makes sense to access all the support that is available before you begin to establish its foundation. Your tax obligations, how to fulfil those obligations and paying any tax due to the Australian Tax Office is an integral part of running any small business and something every owner will need to address before opening for business. To avoid any unnecessary financial worry and stress, and a possible impact on the daily operation of the business, it is important to comply with these obligations. This will prevent any mistakes that can cost you valuable time and money.
When to Consult a Tax Professional
Make sure you put consulting a tax professional at the top of the list before you begin to develop your business. They will be able to support you to structure a business that will be compliant with all tax requirements and so that you avoid any pitfalls once the business opens its doors.
Some of the important issues they will advise you on are:
- what type of business structure will be most supportive.
- the day to day running of the business.
- what tax obligations you will have and how to fulfil them.
- how much their support will cost you on an annual basis.
Keeping in regular contact with your tax professional
Ensure that you keep in regular contact with your tax professional as to how your business is doing. If they are consistently up to date with all aspects of your business when any unexpected issues arise, they will be prepared to support you to deal with them. Adhering to your tax obligations and keeping your tax professional informed about the current status of your business will ensure that the day to day running of your small business will be as smooth as possible.
If you are having any problems in your business do not put off consulting your tax professional as the sooner they become aware of the issue the sooner they will be able to advise you as to your next move.
Always ensure that you keep up to date and accurate information on all your business dealings that relate to your tax obligations. Keeping true and current records will go a long way to reducing any problems and associated stress.
In your first year
It is essential to begin any planning for your small business by understanding all the tax requirements of the Australian Tax Office that will be relevant. These include your ongoing tax obligations, planning for paying your annual tax bill and when this will need to be paid.
Important factors to consider when preparing your taxes.
- Ensure that you fully understand the tax obligations for your business before you are ready to commence operations.
- Investigate what are the most efficient and simple way to keep all the records that will be required to track your income and your expenses.
- Make sure you have a clear understanding of all the implications regarding the tax and legal requirements that will relate to the type of business structure you chose.
- If your small business is be run from your home then there are specific guidelines from the ATO as to the type of expenses you will be able to claim, or not claim.
- Confirm when any tax obligations commence and when payments will be due.
Your first year’s tax payments
From the day you open your doors for business it is of the utmost importance to have a clear understanding of all your tax obligations.
You can ensure this by:
- making sure that you put aside enough money to pay your first tax bill.
- setting up a tax bill account to pay pre-payments into.
- paying instalments on a voluntary basis.
Small business record keeping
To support your business to run as smoothy as possible from the day you open for business ensure that your record keeping is up to date and always accurate. All your records relating to the business and its income and expenses are required to be retained for five years.
Using the latest technology available which includes accounting systems and point of sale software will help you to help to record and retain all transactions. These systems will be able to provide up to date and accurate information as to your business’s current financial status.
Also ensure that you carry out your own reconciliation processes on a regular basis by using the information available such as the business’s bank statements, till tapes, receipts, and tax invoices.
This is where your tax professional can support you as they will have at their disposal all the information you will need to ensure accurate record keeping. As they are always up to date with all tax laws and small business obligations, they will be aware of any changes that may affect the daily running of your business and its tax obligations.
Income and Expenses – Getting it right.
To ensure that you submit a tax return that fulfils all your tax obligations commit to setting up business systems that will keep an accurate summary of the business’s income and expenses.
Small business income
- As part of your tax obligations set out by the ATO you are required to declare all income that is related to your business. This includes all cash payments and any funds that have been paid into your private account.
- It is your responsibility to ensure that your income reporting is accurate, and this will be supported by the systems you have set up.
- The ATO has systems in place that are able to track any business irregularities so being totally honest in all your dealings will avoid any potential investigations.
Small business expenses
- Before you open for business take the time to consult your tax professional as to the expenses you will be able to claim.
- It is important to be clear if the expenses you claim are related to the business and if proof is needed in the future make sure you have the relevant paperwork proving that they are genuine expenses.
- If you operate your business from home, either in the form of a sole trader or as a partnership you will be able to claim deductions for certain expenses such as a percentage of the interest you pay on your mortgage, your insurance, rent and rates, your phone and internet. You will also be able to claim the same percentage for any repairs to your home as long as you have the documentation to support your claim.
- The amount of the expenses you can claim is calculated on the percentage of the area of your office compared to the total area of the dwelling.
- Home-based business expenses are known as occupancy expenses and running expenses.
Reporting your business activity
Your tax professional will advise you on the required process of reporting the status of your tax obligations and the income accrued by the business.
There are two main reports that you will be responsible for on an ongoing basis.
- Your income tax return.
In this return you will report the income from the business, your personal income, and the expenses deductions you are able to claim for the specified period.
- Your Business Activity Statement (BAS)
In this statement you will be reporting on the amount of tax that is applicable to you and your business.
• Declaring the amount of tax you have withheld from your employee’s income, if applicable
• Once you are registered for the ‘Pay as you go’ instalments systems you will declare the instalments paid towards your personal tax.
• If you are registered for GST (Goods and Services Tax) reporting the amount of GST that your business is liable for in the specific period
Here at Taxopia, we have assembled an extremely experienced team of tax professionals to support you through every facet of the set-up and the ongoing operation of your small business. They will advise you on the responsibility you have as to your tax obligations, the preparation of tax reports and the payment of taxes due. If you have any questions regarding the establishment of your business and the day to day running, they are here to provide you the answers and the ongoing support for your business venture today and in the years to come.
Disclaimer: the information contained in this article is for general information purposes only and in no event will Taxopia or its affiliated entities be held liable for any loss or damage caused through the use of this information. Independent advice is recommended for all individual circumstances. Data and specifications included correct as at May 2021.