There’s so much to think about as a franchisee, especially when the end of financial year and tax time roll around. We know the tax system is complex and it can be difficult to understand all your obligations. So here are my top ten tips to make it easier for you to get your tax right and avoid common mistakes that small businesses make.
1. Gather your records
To prepare for lodging your tax return, you need to gather and sort your records from the financial year, including cash, EFTPOS and online transactions covering:
- Sales and other business income.
- Expenses you can claim as a deduction such as staff wages, contractor expenses, and operating expenses.
This will allow you or your registered tax agent to work out how much income you need to report and which deductions you can claim. You’ll need to keep these records for at least five years once you’ve lodged your return.
2. Check for other types of income
When lodging your tax return, you need to report all income you make through your business. As well as sales you made in person or online, check if you have any of the following types of income to report:
- Cash sales
- Bank account interest
- Rental income from property that your business owns
- Assessable government payments (such as fuel tax credits).
3. Take advantage of what you’re entitled to
You can claim a deduction for most of your business expenses, if you follow these three golden rules:
- The expense must have been for your business – not for private use.
- If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
- You must have records to prove the expense and show how you worked out the business portion of an expense.
If you buy a business asset that costs under a certain threshold, you can claim a deduction for it in full in the financial year using the instant asset write-off – check ato.gov.au/instantassetwriteoff to find out more.
There are other concessions you can take advantage of as a small business, such as the income tax offset (for sole traders and individuals in a partnership) or the lower company tax rate (for companies). See the full range at ato.gov.au/concessionsataglance
4. Enhance your record keeping
Good record keeping sets your business up well, makes it run smoother and can help you to identify issues before they become problems. It will also make it easier to get ready for tax time next year – and every year.
Tax time is a great time to review your record keeping practices and look for ways to improve it. For example, you could consider keeping your records electronically, which saves you time and money in the long run.
If you’re a sole trader, you can use the myDeductions tool in the ATO app to record your income and expenses throughout the year. At tax time you can send a copy to your registered tax agent or upload your data into your tax return.
Speak with your registered tax agent or use our record keeping evaluation tool to see if you’re still on the right track – visit ato.gov.au/recordkeepingevaluation
5. Keep an eye on your cash flow
Once you’ve got your records in good shape, you’ll also be in a better position to assess your cash flow. Your inward and outward cash flow is what keeps your business going. You need to make sure your business is likely to make money and will have enough cash available at the right time to pay your bills and meet your tax and super obligations.
Prepare a cash flow projection and refer to it regularly. There’s information on our website about how to do this, or ask your registered tax agent to help you set one up.
6. Check your competition
Reviewing your records for tax time also provides a good opportunity to use our small business benchmarks to compare the performance of your business with your competitors. They’re available for more than 100 industries at ato.gov.au/BusinessBenchmarks
If you use a registered tax agent, chat with them about where your business sits in comparison with the benchmarks. Ask them about steps you can take to improve your performance.
7. Go online
Going online is the quickest and easiest way to manage your tax and super. Use the Business Portal to prepare and lodge activity statements and annual reports, manage your accounts and update your registration details.
If you’re a sole trader, you can use ATO Online services and the myDeductions tool in the ATO app to make managing your tax and super even easier.
8. Make the most of your visit to your tax agent
Most small businesses lodge their tax return through a registered tax agent. When you have your yearly appointment with your agent, why not take the opportunity to speak with them about more than your tax return? They could help you to identify areas of improvement or check that your record keeping processes meet requirements.
Don’t forget that you’re responsible for what’s reported in your tax return. Your agent can only report what you tell them, so my next tip is crucial too…
9. Ask for help and stay informed
If you’re not sure about something, just ask us or your registered tax agent. If you’re feeling overwhelmed or getting behind with your obligations let us know as early as possible so we can work with you to find a solution.
You can also use our range of free resources to educate yourself and stay up-to-date. Start by subscribing to our Small business newsroom at ato.gov.au/sbnews and following us on social media.
10. Look after your mental health
Finally, running a small business can be stressful. Long hours, cash flow pressures, endless paperwork, and the blurring boundaries between work and family life can take a toll on mental health. The ATO offers a range of services aimed at helping businesses stay on track. For more information about how the ATO can help visit ato.gov.au/smallbizmentalhealth
The ATO is here to help you this tax time and throughout the year. Visit ato.gov.au/sbsupport to find out about our support services and tools, and how to contact us if you have any questions.
Justine Williams is an Assistant Commissioner of Small Business at the ATO. Her role involves working across the ATO to make it easier for small businesses to understand and meet their tax and super obligations. She is focussed on ensuring that expanded and improved digital services make it easier for viable small businesses to thrive.