By: Louis White
While large multinational businesses are often experts at finding loopholes to minimise the tax they pay it’s tougher going for small businesses.
But there are deductions that can be claimed to cut your tax bill.
Property costs
For the small business owner there are a lot of decisions to make before deciding whether to leave the comforts of home and rent office space.
But before that question is even contemplated, there is also the dilemma of what you can and can’t claim if you rent or own your own property.
For those renting, you can claim a portion of the rent for your office space plus extras like the electricity you use and your telephone and other items and services related to the business but for the small business owner working from a home that he or she owns, the rules are different.
“If you work from a property you own you can make a claim based on the outgoings actually made, however, you need to be mindful that if you want to claim some of the costs of ownership such as interest and rates for example then the property will become subject to capital gains tax on disposal,” Ric Toovey, partner at UHY Haines Norton PRT chartered accountants, says.
“Claiming the ownership costs turns your property into a place of business not merely a home office.
“Generally speaking, taxpayers who work from home claim only the additional costs incurred as a result of the home office, such as additional electricity. You can claim the direct costs for the home office like telephone, internet, office furniture, computers and other items in full if they are strictly for use of the business.”
There are many tax rules and many areas of claim for small businesses. The reality is even though you are a self-proclaimed expert at running your own business, you aren’t an expert in the area of tax deduction and the nuances associated with the intricacies of tax law.
Purchasing a car
“Most small business operators aren’t aware of the federal government incentive for purchasing large assets, such as cars,” Bob Aldons, owner of Car Business, a car broking company, says.
“The accelerated depreciation on items valued at up to $22,000 (less GST) is still available. Note that I said $22,000 and not $20,000. In the paper, the minister stipulated that small business turning over less than $2,000,000 could claim a full depreciation on the asset, but failed to clearly indicate that the amount was $20,000 net of GST.
“So car buyers – new or used – could depreciate the asset if it cost $22,000 (GST inclusive). The other aspect, particularly for motor cars, is that the on-road costs and dealer delivery could be paid up front allowing the business to claim the depreciation, however, this incentive for purchases finishes on June 30, 2017.”
Small business should only spend money based on sound commercial decisions not because a tax deduction is available.
Ric Toovey
General writeoffs
There really are very few industry-specific concessions available. There are a number for primary producers, and miners, but miners are rarely small businesses.
But there are general writeoffs for small businesses.
“Four small business concessions that can result in real savings are firstly the immediate asset write writeoff for eligible assets acquired and ready for use before 1 July, 2017, costing less than $20,000 (ex-GST),” says Murray Howlett, partner at Pilot Partners chartered accounting firm.
“This may be used for expenditure on multiple assets totalling more than $20,000 provided each asset has a stand-alone usage.
“The second concession is the small business capital gains tax concessions, which can operate to reduce the tax payable on the sale of a business to nil in the right circumstances.”
Howlett says the ability to claim immediate tax deductions for prepaid expenses and exemption from fringe benefits tax on staff car parking are the other two concessions.
“As is always the case with tax law, there are specific conditions that must be met for these concessions to be available,” Howlett says. “Care is always required to be sure the conditions are met for each concession.”
Take care
But while there are concessions out there, small business owners are advised to be very careful when claiming a deduction.
“The capital gains tax concessions are very generous, but the way the laws are drafted can mean that an otherwise eligible business owner may miss out on the savings through using the wrong structure and lack of early planning,” Howlett says.
“I have seen many cases where these savings have been denied in such instances. Equally, I have seen business owners claim the concessions when they were not available. This may result in the taxes being repaid at a later date with interest and penalties. Extreme care is required here.”
Finally, small businesses should only purchase items that they need for the business. There is no point buying something simply to get a tax deduction if it is not going to help you in running your business.
“Small business should only spend money based on sound commercial decisions not because a tax deduction is available,” Toovey says. “The tax saved is only a percentage of the amount spent so the small business is still out of pocket for the balance.
“Having said that, if a small business needs to top up supplies of consumables, attend to repairs and maintenance or purchase new plant and equipment then doing so before 30 June will provide a tax break sooner than if the spend is delayed to July.”
Source: The Sydney Morning Herald
