Determining whether or not your meals can be claimed as a tax deduction can be very confusing for startups and small businesses. While its not a black and white area, there are some simple tips that you can follow to determine whether or not you can claim a tax deduction.
What are the questions you should ask yourself?
- Why is the food or drink being provided? That is, what is its purpose, if it is a social setting than the chances are its entertainment.
- What food or drink is being provided? As the meal becomes more elaborate i.e, a menu with matching wines, it starts to take the form of entertainment.
- When is the food or drink being provided? If the meal is provided during work hours, this is less likely to be entertainment, however it is important to consider at this point whether or not it its social.
- Where is the food or drink being provided? If the meal is consumed on your premises then it’s not likely to be entertainment. However at a restaurant it is difficult to say it isn’t.
These initial steps are what will help you work out whether your business lunch is tax deductible. Continue reading “Tax Tip Tuesday: When is my Business Lunch Tax Deductible?”
Looking at the tax rate for your business is something many small businesses ask about. But it all depends on the type of business structure that you have. So lets get to the bottom of it:
What is Your Business Structure?
The structure of the business will determine the tax rate. The different structures include; Sole Trader (Individual), Partnership and a Company. You can read more about different business structures here.
1. What is a Sole Trader?
As a sole trader there is no separation in business ownership between yourself and the business. Therefore there is unlimited liability, so if your business can’t pay its creditors, your own personal assets could be up for sale.
2. What is a Partnership?
A partnership requires 2 or more people and like with a sole trader, the partners individually share in the business assets as well as its liabilities.
3. What is a Company?
A company has a director(s) as well as shareholder(s). The directors are responsible for the management of the company, whereas the shareholder(s) own the company. Continue reading “TaxTipTuesday: What’s The Tax Rate For My Business?”
What is a tax loss?
A loss is made when the total deductions you claim exceed your income in the financial year.
Why are tax losses important?
It is important to know how to treat a loss when you are starting up a new company, as generally, most businesses will not make a profit in there first year of trading. This is often due to the initial investment in setting up the business and getting it running leading to a loss in the business until sales catch up. Continue reading “Tax Tip Tuesday: Can I use tax losses in my business?”
For our small business clients which hold inventory, a common question we are asked is; (i) do I need to conduct a stocktake and if, so (ii) how often do I need to conduct a stocktake.
If you are a small business entity you can choose not to conduct a stocktake, as long as the change in value of your trading stock is $5,000 or less between;
- the value of stock on hand at the start of the income year
- a reasonable estimate of the value of stock on hand at the end of that year
However, if the value of your trading stock changes by more than $5000, you must conduct a stocktake. Continue reading “Tax Tip Tuesday: Does my small business need an inventory stocktake?”
Is My Business Laptop a Tax Deduction?
Generally speaking, yes. If your laptop is used for your small business, it is a tax deduction. However, the cost of the laptop will determine whether it can be claimed as a tax deduction immediately, or whether it must be depreciated (claimed over a number of years).
These rules apply not just to laptops, but to most other assets/equipment purchased for your small business.
What are the rules
If you have a small business (small business entity) which is an individual, partnership, trust or company with aggregated turnover of less than $2 million, than you can use the simplified depreciation rules. Continue reading “Tax Tip Tuesday: Is My Business Laptop a Tax Deduction?”
Are Gifts and Donations Tax Deductible?
A gift or donation to an organisation is only tax deductible if they have the status of deductible gift recipients (DGRs)
What is a Deductible Gift Recipient (DGR)?
A DGR is an organisation who is entitled to receive income tax deductible gifts and contributions. For example Amnesty International Australia.
How do I claim a tax deduction for a gift or donation?
There are four conditions that must be met in order for you to claim a tax deduction. These include:
- The gift must be made out to a DGR.
- It must truly be a gift, there should be no material benefit or advantage from the transfer of money or property.
- The gift must be covered by one of the gift types, these include money, property and shares.
- The gift must comply with any relevant conditions. For some DGRs, the income tax law adds extra conditions affecting the types of deductible gifts they can receive.
Continue reading “Tax Tip Tuesday: Are Gifts and Donations Tax Deductible?”
A PAYG Instalment forms part of a small businesses BAS (Business Activity Statement). But what exactly is a PAYG Instalment? And when do you need to pay it for your business?
What is a PAYG Instalment?
A PAYG Instalment (or Pay As You Go Instalment) is the ATO’s way of making us prepay our income tax during the year for our Business.
When do you pay PAYG Instalments?
When you lodge your Income Tax Return for your small business, any PAYG Instalments paid during the year will be a credit against the Income Tax calculated. So by prepaying your tax it will help to reduce or avoid those lumpy tax payments at the end of the year, which no business wants!
A PAYG Instalment amount is calculated based on your previous tax return lodged. So, if you paid some tax last year for your business, it is likely that you will have to pay PAYG Instalments this year. However, if it is your first year of operation you won’t pay PAYG instalments, as you haven’t lodged your first tax return yet. Also, if your business was in a tax loss position last year, you will not pay tax instalments as the tax payable last year was nil. Continue reading “Tax Tip Tuesday: When do I pay PAYG Instalments for my Business?”
Often small business owners ask us if they can throw out their tax records once they have lodged their tax return and received their Notice of Assessment from the ATO. The answer is no – definitely not!
Small business owners are required to keep their records for much longer than that. As a general rule of thumb, you must keep your records for the later of five years from when your tax return is due to be lodged, or when you lodge your tax return. Continue reading “Tax Tip Tuesday: How long do I need to keep tax records for?”
A common question we get asked by new businesses is why they don’t receive a tax refund from the ATO when their company made a loss. This often occurs in the first 6 – 12 months of trading when business owners invest heavily in their business getting it off the ground and don’t make money in the first year of trading.
The reason a company won’t receive a tax refund is that they haven’t paid any tax so as the name suggests, there is no tax to refund. So, if companies don’t receive a tax refund when they make a loss, the next question is whether the losses in the company are wasted? And the answer is No! Continue reading “Tax Tip Tuesday: Company losses, do I get a tax refund?”
A lot of new small business owners think that a BAS (Business Activity Statement) is for them to record GST only. There are, however, three key sections (and even more for particular industries such as wine and farming/transport) that are included in a BAS. These are:
1. GST – this is where you record the net sum of (a) GST you have collected from sales and (b) credits for the GST you paid on purchases.
2. PAYG Withholding – When you pay staff wages, you are required to withhold tax from their salary. The tax withheld from their salary is included on the BAS as a PAYG Withholding amount. Continue reading “Tax Tip Tuesday – What is included in a BAS?”