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The Australian Tax Office (ATO) defines a small business entity as an individual, company, partnership, or trust with less than $10 million in turnover threshold and can gain various tax concessions. If you run a small business in Australia, familiarize yourself with income, fringe benefits, and capital gains taxes. Don't forget to find out about land taxes, payroll, customs, and stamp duties. Below are crucial tax tips for businesses in Australia.
The law requires that records be kept for five years, which can be on paper or electronically. This comes in handy, especially when ATO asks you to provide supporting documents to back up your financial statements. Some of the records to keep include bank and credit card statements, sales receipts, employee records, expense invoices, vehicle records, asset purchases, and a list of debtors and creditors.
Consider collaborating with business accounting experts such as Pherrus Financial for all financial and tax matters to ensure your books are adequately maintained while observing accounting best practices.
When you spend your money to make assessable income, you become entitled to a tax deduction. To claim your deduction, you should prove to ATO that you're out-of-pocket and an expense has been incurred to run your business. The tax deductions you may claim include bad debts, sponsorship, and advertising, borrowed money, business travel, insurance, car expense deductions, fringe benefits, tax management expenses, salaries and wages, plant and equipment, losses due to theft, and more.
If a shareholder borrows money from a company, they should repay by the year's tax return is due. If they can’t, they should announce a dividend and treat the borrowed amount as income, then have the dividend franked if applicable. The shareholder may also enter into a binding loan agreement with commercial interest, capital payments, and a stipulated loan period.
You can also consider giving the asset to the shareholder instead of a cash dividend. If the shareholder had lent money to the business before, the asset should be transferred to them as payment for the loan after valuation.
Eligible small businesses can access a variety of concessions, including reporting and payment options. It applies to partnerships, sole traders, companies, and trusts. Different concessions have varying concession requirements.
If you make a tax loss, you can carry forward that tax loss and claim a deduction for your business the following year. Nevertheless, you can offset losses of the current year if you're an individual partner in a partnership or a sole trader and meet specific conditions. If the loss is connected to illegal business activities or isn't a tax loss, you can't claim a deduction.
If your venture makes more than one tax loss in a year, each tax loss should be considered separately. Remember that record-keeping rules apply for business losses where you keep track of your transactions for five years.
Taxes are an essential part of every business. Keeping the above tips in mind will help you understand small business taxes and what they’re about.
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