CPA Australia states that businesses should ask their tax advisor if they are eligible for COVID-19 related tax incentives and deductions, and has published a list of tax tips to help small businesses.
According to the Australian branch of accounting body CPA, most smaller businesses will pay a reduced rate of company tax for 2020-21 while businesses who reduced their tax instalments may face a bigger tax bill.
With the 2021-21 tax year being the first full year of operating in a COVID-19 environment, business owners should be aware of multiple tax deductions and incentives.
Elinor Kasapidis, Senior Manager at CPA Australia says, “95 per cent of small businesses seek professional advice with their taxes. This year, it’s even more important to ask the right questions and provide relevant information to help your adviser determine if you’re eligible for any COVID-related tax incentives and deductions.”
Elinor says that nearly 98 per cent of businesses in Australia are small businesses, providing more than 40 per cent of employment for the entire Australian workforce.
Due to this, the importance of small businesses should not be underestimated.
“Small businesses did it tough over the past 12 months, with many still struggling. Every dollar of tax saved can help them recover and grow,” says Elinor. “Making sure businesses claim everything they’re entitled to is important.”
CPA says that many businesses have experienced cash flow difficulties and financial distress with some small businesses facing greater debt then previous years.
“Businesses can claim a deduction for bad debts if there is little or no likelihood of the debt being recovered, but proceed with caution. Debts that have been forgiven can’t be claimed,” says Elinor.
“The temporary loss carry-back is also available for companies that made a loss this year. This allows businesses to get a refund for previous years’ tax paid instead of carrying the loss forward.”
Elinor says that if small businesses are facing issues such as financial challenges or have debts from refinancing or restructuring, getting proper tax and accounting early on is important.
Some businesses may have also experienced fluctuations in inventory levels and value during COVID-19.
“Ask your accountant whether a different trading stock valuation method for tax purposes may be more effective,” says Elinor.
If a business received COVID-19 related government support or grants over the income year, unless for specific exceptions, any government payments designed to assist businesses in operating need to be included in assessable income.
The tax rate for companies with an annually turnover of less than $50 million has been reduced from 27.5 to 26 per cent for the 2020-21 income year. Companies, however, that have earned 80 per cent of more of their income from passive investments such as rental or interest income will continue to pay the full company tax rate of 30 per cent.
If a business reduced their tax instalment during 2020-21 and did better than expected, CPA says a tax bill should be expected when lodging returns.
“Business owners are increasingly being contacted regarding their income and expense claims,” says Elinor.
The ATO has been cracking down on incorrect expense deductions or unreported cash transactions in the 2020-21 tax return.
“It’s legal to accept payment in cash, but you must keep accurate records of these transactions. The ATO’s data capabilities are vast and growing, and so is their ability to join the dots when it comes to expenses claims and cash transactions,” says Elinor.
Rules related to private use of business assets or funds also have penalties.
“If you took money out of your businesses, for example, to pay school fees, you need to account for it as a fringe benefit, salary, dividend, loan, or repayment. Each of these has tax implications and getting it wrong can be costly,” says Elinor.
To read to CPA’s tax tips for small businesses please click here.
