Did You Claim These for Your SME at Tax Time?
Part of being a business owner is the responsibility to plan and do your taxes. Like clockwork, small and medium enterprises should work on their tax return every end of the financial year. But you may be missing out if you do not know what you can claim.
The small and medium business sectors are the driving forces of the economy. These segments offer significant employment opportunities throughout the country, with more than five million jobs generated. This number easily makes up half of the private sector. According to the Australian Taxation Office, there are three million Australian small businesses. For this reason (among others), the government wants to give back by providing several incentives for SMEs.
This blog details what you can claim at tax time. That way, you never miss any potential savings on taxes, which you can use to grow your business.
What You Can Claim
As part of the small and medium business sector, you are given a break on different tax matters. But that is only if you know what you can claim. Let us begin with the SME boost that the government offers to ease COVID-related issues. A generous package was introduced in 2020 to provide relief for small businesses, allowing them to invest tax in new capital assets.
We’re talking about Temporary Full Expensing (TFE), which has been effective since October 2020. This tax break reduces the full cost of tax-eligible capital assets from an enterprise’s profit for that particular tax year. Normally, businesses have to rely on the depreciating cost of an asset over a period. That means that purchases made for your business will immediately be deducted at their full cost. However, it is essential to note that only specific purchases will be covered and are specifically made up of capital items like:
- Technology (laptops, computers, security equipment, etc.)
- Office furniture
- Fixtures and fittings
- Tools, plant, and machinery
- Solar systems
- Other motor vehicles, including delivery vans and utes
SMEs can claim most car purchases unless they cost more than $59,136.
Small businesses that are eligible for the TFE measure have an aggregated turnover that does not exceed $5 billion. If you do not know what aggregated turnover means, it is the turnover of a parent company plus its subsidiaries. Parent companies include those overseas.
Some overseas parents and subsidiaries may have an annual turnover of over $5 billion. They can still claim the TFE tax break if the Australian income is less than the mentioned amount. However, these businesses should have spent $100 million upwards from 2016-17 to 2018-19. This is great news for huge international companies, including those that have a global turnover of more than $5 billion.
As a result of the high turnover threshold, most, if not all, Australian businesses can benefit from the TFE scheme. But remember that TFE is only applicable to new depreciable assets. Existing assets may be eligible for the scheme if you improve or enhance them. This applies to assets that you purchased before the TFE was introduced.
For SMEs with an aggregated annual turnover of less than $50 million, the temporary full expensing will cover second-hand assets, as well. However, if your turnover exceeds this amount, second-hand purchases will be excluded.
You’re allowed to claim capital assets even if they are utilised privately. For example, suppose you purchased a $2,500 computer. In that case, you can claim a $1,250 deduction if you use it for business purposes 50% of the time.
SMEs can claim a lot more goods and services to help them get through the challenges of the pandemic. Some modifications are applied on expenses you can claim with the inclusion of the following:
- Personal Protective Equipment for everyone, including the staff and customers
- Self-education as you upskill for your current role during lockdown
- New technologies purchased or acquired to continue operations remotely
- Accounting fees
It’s always a good idea to contact a tax accountant to talk about your business situation.
Not-So-Known Claims for SMEs
On top of the obvious expenses like the ones we have listed previously, many SMEs overlook certain claims. Be sure that you claim them when lodging your tax return online to benefit from the additional deductions:
- Salaries and Superannuation: Since your employees’ wages or salaries are an operating expense, they are claimable in your tax return in Australia. Meanwhile, if you are a sole trader, you may be able to claim your super contributions. Businesses can claim a deduction for their workers’ super as long as the contribution is paid on time. This also applies to claims for retirement savings accounts for employees.
- Union Fees: Small and medium businesses can claim union and registration or subscription fees up to $42 per financial year.
- Bad Debts: For your unpaid invoices, you can write them off as bad debt if you are confident that they will not be paid. Therefore, you must make several attempts first to receive the payment.
- Laundry Costs: You can claim laundry costs only if you wear uniforms or occupation-specific clothing.
- Insurance: Insurance is a must if you’re running a business, no matter the size. But premiums are not that affordable, especially for neophytes. You can claim insurance premiums, which can give you the helping hand you need when paying for other business expenses. Some that are covered include accident, disability, burglary, public risk, fire, and motor vehicle.
Tax return in Australia is a little bit complicated. It’s not easy to keep up with the changes, which is why many look for tax advice and similar services from professionals. Don’t worry; tax advice fees may also be claimed. To learn more about what you can claim or any other tax deductions you can consider, check out the guides at Taxreturn.com.au.
What You Cannot Claim
Above, you can see that the temporary full expensing scheme covers plenty of purchases. However, there are a few things that you cannot claim under it, such as:
- Cars that cost more than $59,136 (excluding GST)
- Assets that you have overseas
- Assets and buildings included in capital works deductions
- Certain primary production assets like water facilities covered by an instant write-off scheme
- Assets that the business does not uses
Many people wonder why expensive cars are not covered, even if they are used for business transactions. It’s an existing rule and has been carried over to the temporary full expensing scheme. Its purpose is to control car-related purchases, particularly lavish cars, at the taxpayer’s expense. However, motor vehicles that are not considered cars based on the ATO’s definition can still be claimed. That’s why large utility vehicles like trucks and vans can be fully written off no matter how much they cost.
Please note that for you to make the above-mentioned claims as an SME, your annual turnover should not exceed $10 million. Small business CGT concessions should have a turnover of $2 million.
Claiming at tax time is easier when you’re able to keep records that thoroughly explain transactions. Have them ready written or printed on paper. The ATO also accepts electronic copies. Everything should be in English or another form that can easily be converted to English.