Support to Close Out 2020

Andrew Watson, Australian Taxation Office

2020 has been an incredibly tough year, and as it draws to a close, we are all hoping that 2021 brings better times.

From the ongoing drought, to bushfires, floods and of course the impacts of COVID-19, small businesses have never had it tougher. As the challenges of 2020 continue to evolve, we understand many small businesses continue to deal with changes in their circumstances and ongoing uncertainty. At the Australian Taxation Office, we’re here to support the small business community through these difficult times.

As we reach the end of 2020, it’s important that small businesses continue to do what they can to stay on top of their tax and super obligations. What you need to do will be different depending on your circumstances, whether you’ve had to rebuild your business, have made a loss for the first time, had to pause or change the way you operate, or have made the difficult decision to close permanently. Whatever your situation, we encourage you to contact us early as we have a range of options to support you.

Keep up with your lodgements

Even if you can’t pay by the due date, it’s important to keep lodging your activity statements and tax returns on time if you can. This shows us you’re aware of your obligations and may give you access to some of the government stimulus measures available. For example, employers who are eligible for the cash flow boost need to lodge June to September activity statements in order to receive their credits.

If you're having difficulty meeting your tax and super obligations because of COVID-19, contact our Emergency Support Infoline on 1800 806 218 or speak with a trusted tax advisor. We’re here to help. For more information visit ato.gov.au/COVID-19.

If you’re worried you won’t be able to pay on time, or you’ve already missed a due date, contact us as early as possible to discuss your situation as we have a range of options to support you. For more information visit ato.gov.au/helpwithpaying.

“If you’re feeling overwhelmed or getting behind with your tax, let us know as early as possible so we can work with you to find a solution. No matter what your situation is, it’s never too late to ask for help.” 

Getting your BAS and tax return right

Following these tips can help things go smoothly when completing your next business activity statement (BAS):

  • Only claim GST credits for the business portion of purchases.
  • Check you aren't claiming for GST-free items.
  • Claim GST and fuel tax credits within four years.
  • You can vary your pay as you go (PAYG) instalment amount or rate on your activity statement.
  • Made a mistake? You can revise or fix the mistake on your next activity statement.

If you vary your PAYG instalments due to COVID-19, we won’t apply penalties or charge interest for excessive variations made in 2020-21 where you have made your best attempt to estimate your end of year tax liability. For more information visit ato.gov.au/paygicovid.

Remember, JobKeeper payments aren't reported on your activity statement, they're reported as income in your income tax return.

Find more information on lodging your BAS and other handy BAS and GST tips at ato.gov.au/BAS

When it comes to your income tax return, it’s important you include all the income you make through your business. This includes income that you earn through:

  • payments made to you in cash and electronically
  • vouchers or coupons
  • investments and bank interest
  • most government grants and payments.

Remember to also include your personal service income and what you earn from the sharing economy, such as ride-sourcing.

You can claim a deduction for most of the costs of running your business, including:

  • motor vehicle expenses
  • home-based business expenses
  • travel expenses.

You can’t claim a deduction for private expenses. If the expense is for a mix of business and private use, you can only claim the portion related to your business.

You need to keep accurate and complete records to prove what you report and claim in your income tax return.

We have tax time toolkit guides and fact sheets to help you work out things like expenses you can claim as deductions and records you’ll need to keep at ato.gov.au/SBtaxtimetoolkit

Making a loss

Many businesses may be making a loss for the first time. These businesses may be able to claim a deduction for losses they make.

Sole traders and individual partners in a partnership who meet certain conditions can offset current year losses against other assessable income (such as salary or investment income) in the same income year. Otherwise, they can defer the loss or carry it forward and offset it to a future year when the business next makes a profit.

Businesses that are set up under a company structure that have made a tax loss in a current year can generally carry forward that loss for as long as they want and claim a deduction for their business in a future year.

Businesses need to keep records for five years for most transactions. However, if you fully deduct a tax loss in a single income year, you only need to keep records for four years from that income year.

It’s important to note there are some deductions that can't be used to create or increase a tax loss, such as donations or gifts and personal super contributions.

Find more information about making a loss at ato.gov.au/losses.

Closing a business

Unfortunately, some businesses will have to close permanently. To do so, you need to lodge any outstanding activity statements and instalment notices, make GST adjustments on your final activity statement and lodge your final tax returns – so we can finalise your account and issue any refunds that might be owed to you. If you have an outstanding tax debt, a payment plan or a deferral of your tax liabilities, contact us so we can provide additional support based on your individual circumstances.

You should also account for the value of any depreciating assets you have at the time you cease your business. Find out more at ato.gov.au/balancingadjustment.

Once done, you’ll need to cancel your ABN, and GST registration if you have one. If you need help doing this, ask your registered tax professional or call us. You can find more information about closing your business at business.gov.au/closing

“You’ll also need to keep your business records for at least five years after the end of the financial year you sell or close your business in." 

Looking after yourself

We recognise the pressure taxpayers are under when dealing with unexpected life events and financial difficulties which can take a toll on their wellbeing, and are committed to providing support to those who need help with their tax and super commitments.

If struggling from anxiety, depression or any other mental health condition, mental health professionals are available anytime at:

There are also some great resources for small businesses experiencing mental health issues, like aheadforbusiness.org.au.

To find out more about the support we have available, visit ato.gov.au/support

 

Andrew Watson is an Assistant Commissioner for the Australian Taxation Office in the Small Business line. He is currently responsible for understanding how small businesses engage with the tax and super systems, collaborating with small businesses, industry groups and government agencies to shape the client experience and drive improved digital services. His area also helps small businesses manage cash-flow and digital readiness so sustainable and viable businesses can thrive, and advocates for small businesses within the ATO.