A lot of confusion can occur amongst startups and whether or not they can claim their business lunches as a tax deduction. In order to help eliminate some of the confusion there are a few simple steps that you can follow in order to determine whether you these expenses are tax deductible or not.
The questions that you should ask yourself, are as follows;
- Why is the food or drink being provided? What is the purpose of the food and drink being provided, if it happens to be a social setting than the chances are this is entertainment.
- What food or drink is being provided? As your meal starts to take a more elaborate form, for example there is matching wines, its starts to take the form of entertainment.
- When is the food or drink being provided? If a meal is provided during work hours than the chances of it being classed as entertainment are less likely. You do need to consider though whether or not it is social.
- Where is the food or drink being provided? If you consume the meal on your premises than its not likely to be considered entertainment. However if you go to a restaurant it is difficult to say its not entertainment.
Continue reading “TaxTipTuesday: I am having a lunch with a client. Is it tax deductible?”
In this Tax Tip Tuesday, we look at a question that all business owners ask. How do I pay myself a salary?
This is part of our three part series on how do I take money out of my company?
Pay myself a salary?
One way to take money out of your company is to pay yourself a salary, so essentially you are now an ‘employee’ of your company. Although you may be a Director, the same rules here apply whether you’re a Director or an employee.
As an employee, tax will need to be taken out of your salary on pay day. A good tool to work out how much tax to take out is to use the ATO Tax calculator.
As an employee, there are also other on-costs you need to consider. The two main ones are superannuation and worker’s compensation insurance. Generally speaking (although, there are some exemptions), your company will need to pay superannuation when you earn at least $450 per month. The current rate of superannuation is 9.25%. Continue reading “Tax Tip Tuesday: How do I pay myself a salary?”
Most small business who are in touch with their financials will have an idea if they have a hefty income tax bill looming. Some of these guys will try to get in early with their accountants to find out exactly how much they need to pay in income tax, even though the business tax return might not be due until May of the following year. Once the balance of the income tax has been worked out, the general rule was “lets hold off lodging until the return is due”.
The problem that this creates is the surprise PAYG Instalment, which is also known as the “catch-up” PAYG Instalment.
Once the business tax return is lodged, the ATO will re-assess the quarterly PAYG Instalments the small business needs to make. If the lodgement of the income tax return is deferred until May (the last quarter of the financial year), then the “catch-up” payment will also fall into the last quarter, which means there would be a significant payment in July, which is when the June quarter activity statement is due. Continue reading “Do I still benefit from deferring lodgement of my business tax return?”
Pay As You Go Instalments (PAYG Instalments) is the Australian Tax Office’s way of making us prepay our income tax during the year. This means that 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, although no one likes to pay tax, PAYG Instalments helps avoid or reduce the lumpy tax payments at year end. Generally, this is paid through the Business Activity Statements each quarter and the ATO gives two options to calculate how much to pay:
- PAYG Instalment Amount (this is a fixed dollar amount they provide)
- PAYG Instalment Method (this is a % that you apply to business or investment income)
Registration for PAYG Instalments will be triggered once the ATO sees your income tax return includes business or investment income (eg dividends, interest, partnership or trust distributions) and, if you are a sole trader, when your income from these sources is more than $4,000. Continue reading “Tax Tips Tuesday – What are PAYG Instalments?”
Knowing when to register for GST is something that all startup businesses should be aware of. GST stands for Goods and Services Tax which is a consumer tax of 10% that is applied to most supplies of goods and services in Australia. You can read more about it here.
So when do you need to register for GST?
- You must register for GST if you are running a business and your turnover is $75,000 or more ($150,000 or more for non-profit organisations). Registration is optional if your turnover is below this threshold.
- Calculating ‘GST turnover’ is essentially your gross business income excluding GST for either the 12 months to the current month (current turnover) or the 12 months starting with the current month (projected turnover).
- So if you start a business and you have projected that you will earn more than $75,000 in the first year of operation, then you should register for GST
The ATO requires you to have an Australian business number (ABN) so your business can be part of the GST system. Often, they can be obtained as part of the same registration at the Australian Business Register.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting.
Turn your Business Story into Numbers (+ A touch of tax tips for End of Financial Year)
Accounting Essentials for Small Businesses and Startups
Time: 04:00 pm
Location: The HUB Melbourne, 673 Bourke St Melbourne VIC 3000
As small business owners, we’ve all been told how important our numbers are. Some of us have spent hours trying to pull them together. Some of us have never understood where to start when it comes to the numbers. But when you turn your business story into numbers, it can really help set your business up for success.
Every small business has its own unique story, so the question is, how can you turn your business story into numbers?
If you are a small business owner who is number-phobic, this is a must attend event! We’ll help you love the numbers and understand how you can use them to make better business decisions.
Being end of June, we’ll also be chatting through our Nudge Essential End of Financial Year Tax tips for startups and small business owners.
During this interactive one hour session you will learn
- 3 reasons why numbers help you run a better business
- 6 key steps to preparing and forecasting your numbers
- How to make sense of your numbers
- Essential end of year tax tips for End of Financial Year
About the presenter
Mark Veran is co-founder and Head of Tax at Nudge Accounting. Nudge is all about giving small businesses their numbers each month so they can make better business decisions. A Chartered Accountant, Mark has 15 years’ experience in the accounting industry, his most recent as an Associate Partner at a Big 5 firm.
When Mark isn’t chatting to startups and small businesses, he can be found at his son’s soccer matches, or cheering on Liverpool Football Club (from home).
Tax planning for your small business is something you should always be thinking about. And don’t just think about tax planning as a way of claiming more tax deductions, it’s also a really effective way to clean up your business operations ready for a new financial year. And with financial year-end almost here, there are some really important questions that you should cover off.
1. Are you on top of your unpaid invoices?
It’s important to review your unpaid invoices (debtors list) as small businesses can claim a deduction for old debts which are not recoverable.
2. About to do some year-end invoices?
Unless you are a sole trader operating on a cash basis, generally income is assessable when an invoice is issued. This means you might want to hold off invoicing clients until July so that it is taxable in the next financial year.
3. Still have some old equipment on the books?
It’s important to review your list of assets as small businesses can claim a deduction for the remaining value of any asset which is no longer used.
4. Have you organised a stocktake?
If your business carries stock (for example if you are a retail business), then a stocktake is generally required to be done before year-end. During your stocktake, identify unsaleable and damaged stock as, if disposed or gifted to charities, these are able to be written-off and claimed as a tax deduction.
5. Need to update some of your equipment?
Small businesses can claim a deduction for the entire purchase price (up to $1,000), rather than having the deduction spread over several years. So purchasing new equipment now means you can get a tax deduction this financial year.
Continue reading “Tax planning for small business in 2014!”