The Sunday Times, 19.6.16, Vetti Kakulas Business Reporter
SMALL business owners must prepare for tax time or suffer the consequences, WA’s leading financial advisers warn.
And SME owners are being urged to exploit the tax deductions they are entitled to in the run-up to the end of financial year.
The Australian Taxation Office was owed $27.5 billion in 2010-11 which increased 27 per cent to $35.1 billion for 2014-15.
The ATO said small business accounted for 62 per cent of outstanding debt – almost $22 billion – and SMEs were a “specific area of focus”.
Affluence Private Wealth managing director Yves Schoof said many small businesses in WA failed to keep track of their tax liabilities.
“Your employer automatically deducts employees’ tax to the ATO, but if you’re’ self-employed a lot of people think the profit they make is theirs,” Mr Schoof said.
“They end up spending on a house or new car without realising tax will hit them a year later, often it’s a double whammy.
Mr Schoof suggests business owners look at their profit and loss statements monthly and set aside money for tax and GST purposes.
“I’ve seen individuals owing up to $70,000 to the tax office, that was just in two years’ worth of tax,” he said.
“It can be disastrous, because the ATO is a lot more aggressive these days in calling in those debts, they won’t hesitate to bankrupt people or businesses.
“The economic environment has worsened, so every dollar of tax revenue that’s outstanding is hurting.”
Institute of Public Accountants senior tax adviser Tony Greco said people running a business could still take advantage of the $20,000 instant asset write-off in which they could buy business equipment.
The Government announced it in the 2015 Budget and it comes into effect for the first time this year.
“Unincorporated small businesses, including sole traders, partnerships and businesses operating through trusts, can also look forward to a tax rebate this year,” Mr Greco said.
“The discount represents a 5 per cent tax discount for business income up to a maximum amount of $1000 will be warmly welcome this year.”
Cloud software provider Xero’s head of accounting, James Solomons, said it was a good time to recalibrate, set goals and set their business up for success in the coming year.
“The majority of costs you incur running your business can be claimed as a tax deduction as long as they directly relate to earning your income. The 2016 federal budget introduced changes to the small business equity concession, increasing the threshold from $2 million to $10 million in annual turnover,” he said-
“As a result, from July 1, 2016, many more business owners will be eligible for small business concessions, such as access to the immediate deduction for assets costing up to $20,000 and the opportunity to account for tax on a cash basis. But for the upcoming end of financial year, the threshold remains at $2 million.”
Pitcher Partners director Chris Lyons recommends small business bosses record all their expenses to maximise their tax return.
“The biggest mistakes are usually a combination of not being organised and expenses are not being claimed,” he said. “They could be missing out on 30 cents in the dollar of those expenses they aren’t claiming.
Bentleys Perth director taxation and business services Ross Prosper said ‘seeking external help can help place businesses in a better financial position for the year ahead.
“By engaging early with an adviser, you can save yourself a lot of time and money,” he said.