Tax time tips for your small business


Depending on their situation, employees may be celebrating the stage 3 tax cuts that will kick in from July 1, but for small business owners the end of the financial year often brings extra administrative chores and, ultimately, a tax debt.

The nation's five million-plus small enterprises punch above their weight when it comes to tax revenue, contributing around one in every three dollars of total income tax collected.

Unlike their larger corporate cousins, small businesses rarely have access to in-house experts, and tax matters can be a minefield.

tax tips for your small business

Something as simple as holding an office party to celebrate the end of the financial year, for example, can trigger fringe benefits tax (FBT) if the party is held on a weekend instead of Monday to Friday.

ATO's tax platform for small businesses

The Australian Taxation Office (ATO) has recognised how complex tax is for small business, and while it hasn't changed the rules, it has launched a free online learning service pitched at small enterprises.

The 'Essentials to strengthen your small business' platform offers more than 20 short courses plus a calendar of key lodgement dates.

"Small business owners can now access short, free and flexible online courses to sharpen their knowledge of tax, super and the core aspects of effective small business management," says Will Day, the deputy commissioner for small business.

The platform supports a variety of learning styles, with videos, case studies, audio content and written information, as well as the option to test knowledge with quick quizzes.

Day adds that the platform includes tips on areas where the ATO sees small business owners making mistakes, such as goods and services tax (GST) and business deductions.

"We know that a lot of small businesses don't have time to attend courses during business hours while they are busy running their business, so the beauty of our new platform is that you can do it at a time that suits you, save your progress and then pick it up again later," says Day.

Bruce Billson, the small business and family enterprise ombudsman, believes the platform will be helpful to small businesses.

"Business know-how and being able to benefit from the wisdom of others can be key to successfully turning an idea into an enterprise.

"The spark that inspires an entrepreneurial person into creating and growing a business is rarely the behind-the-scenes business of running the business. Yet this is where success and better decision-making can be formed."

When to get tax advice

That may be the case, but the ATO's online courses are no substitute for expert advice.

About 96% of small businesses use a tax expert, often an accountant, tax agent, business activity statement agent or bookkeeper, and the professional fees involved are likely to be money well spent, especially as the ATO has its eyes on the so-called 'small business income tax gap'.

This is the difference between what the ATO expects to collect from small businesses compared with what it receives. And it's a lot bigger for small businesses than big corporations.

As a guide, for the 2020-21 tax year (the latest data available), the ATO estimates the small business income tax gap is $15 billion or 12%, meaning around 88% of the total theoretical tax was paid.

By contrast, the tax gap for large corporations is just $3 billion or 4% of expected tax receipts.

Regardless of the structure of a small business - from company to sole trader - the ATO says fudging on income is a key driver of the tax gap. This being the case, its online learning courses are worth a look.

Expanding your understanding of tax can only be a good thing.

However, as we head towards tax time it is important to get things right and resist the temptation to knock a couple of zeros off your annual revenue.

The ATO can support small enterprises that are struggling to pay their tax bill, though it warns that 'firm action' will be taken if it detects deliberate avoidance.

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Anthony O'Brien is a small business and personal finance writer with 20-plus years' experience in the communication industry. He has a Master of Arts from Macquarie University, and has written for Money since 2001.